-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F01qj31Z8EGZD/2M/d7Zv2zkOD6sLr6CB8JWPILyC1EdtYjog8TvLy15V7JJ5Uzg 3xlH//oAeMC6dMAKS/Ss5w== 0000950150-97-001421.txt : 19971014 0000950150-97-001421.hdr.sgml : 19971014 ACCESSION NUMBER: 0000950150-97-001421 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970919 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971010 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAMES CAPITAL CORP CENTRAL INDEX KEY: 0000913951 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 954438859 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 033-70636 FILM NUMBER: 97693899 BUSINESS ADDRESS: STREET 1: 3731 WILSHIRE BLVD STREET 2: C/O GARY K JUDIS CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2133516100 MAIL ADDRESS: STREET 1: 3731 WILSHIRE BLVD 2ND FLOOR STREET 2: 3731 WILSHIRE BLVD 2ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90010 8-K 1 FORM 8-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) SEPTEMBER 19, 1997 AAMES CAPITAL CORPORATION ON BEHALF OF AAMES MORTGAGE TRUST 1997-C ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) CALIFORNIA 333-21219 95-4438859 - ---------------------------- ------------ ------------------- (State or other jurisdiction (Commission (I.R.S. employer of incorporation) file number) identification no.) 350 SOUTH GRAND AVENUE, 52ND FLOOR LOS ANGELES, CALIFORNIA 90071 - ---------------------------------------- ---------- (Address of principal executive offices) (ZIP Code) (213) 640-5000 -------------------------------------------------- Registrant's telephone number, including area code NA ------------------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ 2 Item 5. Other Events Aames Capital Corporation (the "Sponsor") and an affiliate, Aames Capital Acceptance Corp., registered up to $2,800,000,000 principal amount of asset-backed certificates and asset-backed bonds under Rule 415 of the Securities Act of 1933, as amended (the "Act"), pursuant to a Registration Statement on Form S-3, including a prospectus (Registration Statement File No. 333-21219) (the "Registration Statement"). Pursuant to the Registration Statement, the Sponsor filed a Prospectus Supplement dated September 15, 1997, and a Prospectus dated September 15, 1997 (collectively, the "Prospectus"), relating to $498,802,000 aggregate principal amount of Mortgage Pass-Through Certificates, Series 1997-C (the "Certificates"), issued by Aames Mortgage Trust 1997-C ("Trust") on September 19, 1997 (the "Closing Date"). The Certificates consist of the Class A-1F Adjustable Rate Certificates, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class A-IO, Class M-IF, Class M-2F, Class B-IF, Class A-IA, Class M-IA, Class M-2A and Class B-1A Certificates (together, the "Offered Certificates"), Class B-2F Certificates, Class R Certificates and Class C Certificates. Only the Offered Certificates were offered by the Prospectus. The Certificates represent the entire undivided interest in the Trust created pursuant to the Pooling and Servicing Agreement dated as of September 1, 1997 (the "Pooling and Servicing Agreement") between the Sponsor, in the capacity of Seller and Servicer, and Bankers Trust Company of California, N.A., as trustee (the "Trustee"). The purpose of this Current Report on Form 8-K is to file certain final documents with respect to the Offered Certificates. Item 7. Financial Statements: Pro Forma Financial Information and Exhibits. (a) Not applicable. (b) Not applicable. (c) Exhibits: 1.1 Underwriting Agreement, dated September 15, 1997, between Aames Capital Corporation, as Sponsor, and Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I to the Pricing Agreement. 1.2 Pricing Agreement, dated September 15, 1997, between Aames Capital Corporation, as Sponsor, and Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I thereto. 4.1 Pooling and Servicing Agreement, dated as of September 1, 1997, between Aames Capital Corporation, as Seller and Servicer, and Bankers Trust Company of California, N.A., as Trustee. 2 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has dully caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AAMES CAPITAL CORPORATION By: /s/ Mark E. Elbaum ------------------------------------ Mark E. Elbaum Senior Vice President - Finance and Chief Accounting Officer Dated: October 10, 1997 4 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ----------- ---------------------- 1.1 Underwriting Agreement, dated September 15, 1997, between Aames Capital Corporation, as Sponsor, and Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I to the Pricing Agreement. 1.2 Pricing Agreement, dated September 15, 1997, between Aames Capital Corporation, as Sponsor, 1.2 and Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I thereto. 4.1 Pooling and Servicing Agreement, dated as of September 1, 1997, between Aames Capital Corporation, as Seller and Servicer, and Bankers Trust Company of California, N.A., as Trustee.
4 EX-1.1 2 UNDERWRITING AGREEMENT 1 EXECUTION COPY AAMES CAPITAL CORPORATION AND THE UNDERWRITERS UNDERWRITING AGREEMENT FOR AAMES MORTGAGE TRUSTS MORTGAGE PASS-THROUGH CERTIFICATES, ISSUABLE IN SERIES SEPTEMBER 15, 1997 2 September 15, 1997 Prudential Securities Incorporated as Representative of the several Underwriters named in Schedule I to the Pricing Agreement c/o Prudential Securities Incorporated One New York Plaza, 15th Floor New York, New York 10038 Aames Capital Corporation (the "Company") proposes, from time to time, to enter into one or more pricing agreements (each a "Pricing Agreement") in the form of Annex A hereto, with such additions and deletions as the parties thereto may determine, and, subject to the terms and conditions stated herein and therein, to issue in series (each a "Series") and to sell to the Underwriters (as hereinafter defined), mortgage pass-through certificates, each Series of which is to be issued pursuant to an applicable pooling and servicing agreement (a "Pooling and Servicing Agreement") to be dated as of the applicable Cut-off Date (as defined in the Pricing Agreement), between the Company, as seller and servicer, and Bankers Trust Company of California, N.A., as trustee (the "Trustee"). Prudential Securities Incorporated, will act as underwriter and as Representative (in such capacity, the "Representative") of the several underwriters named in Schedule I hereto (the "Underwriters"). Each Series of Certificates (as defined below) will evidence an undivided beneficial ownership interest in a separate Trust (as defined in the related Pooling and Servicing Agreement) consisting primarily of a pool (the "Pool") of mortgage loans (the "Mortgage Loans") listed in an attachment to such Pooling and Servicing Agreement. The Certificates will be issued in one or more classes (each a "Class"), which may be divided into one or more subclasses (each a "Subclass"). Any rights of holders of Certificates of a particular Class or Subclass to receive certain distributions with respect to the Mortgage Loans that are senior to such rights of holders of Certificates of any other Class or Subclass of the same Series shall be specified in the Pricing Agreement. The Certificates of a Series to be purchased pursuant to a Pricing Agreement will be described more fully in the base Prospectus and the related Prospectus Supplement (each of which terms is defined below) which the Company will furnish to the Underwriters. As used herein, the term "Execution Time" shall mean the date and time that the Pricing Agreement is executed and delivered by the parties thereto; the term "Agreement," "this Agreement" and terms of similar import shall mean this Underwriting Agreement including the Pricing Agreement; and the term "Closing Date" shall mean the Closing Date specified in the Pricing Agreement. All capitalized terms used but not otherwise defined herein have the respective meanings set forth in the form of Pooling and Servicing Agreement heretofore delivered to the Representative. 2 3 1. Securities. Unless otherwise specified in the Pricing Agreement, the Certificates of each Series will be issued in classes as follows: (i) a senior class (which may include two or more subclasses) with respect to each Mortgage Loan Group (collectively, the "Class A Certificates"), (ii) a mezzanine class (which may include two or more subclasses) with respect to each Mortgage Loan Group (collectively, the "Class M Certificates"), (iii) a publicly offered subordinate class (which may include two or more subclasses) with respect to each Mortgage Loan Group (collectively, the "Class B Certificates"), (iv) the Class C Certificates (the "Class C Certificates"), (v) a privately offered subordinate class with respect to the fixed rate Mortgage Loan Group (the "Private Class B Certificates") and (vi) a residual class with respect to each Mortgage Loan Group (the "Class R Certificates). The Class A Certificates, the Class M Certificates and the Class B Certificates specified in the Pricing Agreement are hereinafter referred to as the "Offered Certificates." The Offered Certificates, the Private Class B Certificates, the Class C Certificates and the Class R Certificates are hereinafter referred to as the "Certificates." 2. Representations and Warranties of the Company. The Company represents and warrants to, and covenants with, each Underwriter that: A. A registration statement on Form S-3 (Registration No. 333-21219), including a prospectus and a form of prospectus supplement that contemplates the offering of mortgage pass-through certificates from time to time, has been filed by the Company and Aames Capital Acceptance Corp. ("ACAC") with the Securities and Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933, as amended and the rules and regulations of the Commission thereunder (collectively, the "1933 Act"), and as amended from time to time by one or more amendments, including post-effective amendments, has been declared effective by the Commission prior to the date of the Pricing Agreement. The Company will cause to be filed with the Commission, after effectiveness of such registration statement (and any such post-effective amendments), a final prospectus in accordance with Rules 415 and 424(b)(2) under the 1933 Act, relating to the Offered Certificates. As used herein, the term "Effective Date" shall mean the date that the Registration Statement (including the most recently filed post-effective amendment, if any) became effective. "Registration Statement" shall mean the registration statement referred to in the preceding paragraph, including the exhibits thereto and any documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act specifically relating to the terms of the Offered Certificates or the Pool and filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except that if the Registration Statement is amended by the filing with the Commission of a post-effective amendment thereto, the term "Registration Statement" shall mean collectively the Registration Statement, as amended by the most recently filed post-effective amendment thereto, in the form in which it was declared effective by the Commission. The prospectus dated the date specified in the Pricing Agreement (which if not so specified shall be the date of such Pricing Agreement), which constitutes a part of the Registration Statement, together with the prospectus 3 4 supplement dated the date specified in the Pricing Agreement (which if not so specified shall be the date of such Pricing Agreement) (the "Prospectus Supplement"), relating to the offering of the Offered Certificates, including any document incorporated therein by reference pursuant to the Exchange Act, are hereinafter referred to collectively as the "Prospectus," except that if the Prospectus is thereafter amended or supplemented pursuant to Rule 424(b), the term "Prospectus" shall mean the prospectus, as so amended or supplemented pursuant to Rule 424(b), from and after the date on which such amended prospectus or supplement is filed with the Commission. Any preliminary form of the Prospectus Supplement which has heretofore been filed pursuant to Rule 402(a) or Rule 424 is hereinafter called a "Preliminary Prospectus Supplement." Any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement, the Prospectus or the Prospectus Supplement shall be deemed to refer to and include the filing of any document under the Exchange Act after the effective date of the Registration Statement or the issue date of the Prospectus or Prospectus or Prospectus Supplement, as the case may be, incorporated therein by reference. B. As of the date hereof, and as of the dates when the Registration Statement became effective, when the Prospectus Supplement is first filed pursuant to Rule 424(b) under the 1933 Act, when, prior to the Closing Date, any other amendment to the Registration Statement becomes effective, and when any supplement to the Prospectus is filed with the Commission, and at the Closing Date, (i) the Registration Statement, as amended, as of any such time, and the Prospectus, as amended or supplemented as of any such time, complied or will comply in all material respects with the applicable requirements of the 1933 Act, and (ii) the Registration Statement, as amended as of any such time, did not and will not contain any untrue statement of a material fact and did not and will not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus, as amended or supplemented as of any such time, did not and will not contain an untrue statement of a material fact and did not and will not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to the information contained in or omitted from (i) the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters as set forth in this Agreement or the Pricing Agreement specifically for use in connection with the preparation of the Registration Statement or the Prospectus and (ii) the Form 8-K - Computational Materials (as defined in Section 5K below) or Form 8-K - ABS Term Sheets (as defined in Section 5L below), or in any amendment thereof or supplement thereto, incorporated by reference in such Registration Statement or such Prospectus (or any amendment thereof or supplement thereto). C. The Company is duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority (corporate and other) to own its properties and conduct its business as now conducted by it, and as 4 5 described in the Prospectus, and is duly qualified to do business in each jurisdiction in which it owns or leases real property (to the extent such qualification is required by applicable law) or in which the conduct of its business requires such qualification except where the failure to be so qualified does not involve (i) a material risk to, or a material adverse effect on, the business, properties, financial position, operation or results of operations of the Company or (ii) any risk whatsoever as to the enforceability of any Mortgage Loan. D. There are no actions, proceedings or investigations pending, or, to the knowledge of the Company, threatened, before any court, governmental agency or body or other tribunal (i) asserting the invalidity of this Agreement, the Certificates or of the Pooling and Servicing Agreement, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement or the Pooling and Servicing Agreement, (iii) which may, individually or in the aggregate, materially and adversely affect the validity or enforceability of, this Agreement, the Certificates or the Pooling and Servicing Agreement, or the performance by the Company of its obligations under this Agreement or the Pooling and Servicing Agreement or (iv) which may affect adversely the federal income tax attributes of the Offered Certificates as described in the Prospectus. E. The execution and delivery by the Company of this Agreement and the Pooling and Servicing Agreement, the direction by the Company to the Trustee to execute, countersign, authenticate and deliver the Certificates and the transfer and delivery of the Mortgage Loans to the Trust by the Company are within the corporate power of the Company and have been, or will be, prior to the Closing Date duly authorized by all necessary corporate action on the part of the Company and the execution and delivery of such instruments, the consummation of the transactions therein contemplated and compliance with the provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute or any agreement or instrument to which the Company or any of its affiliates is a party or by which it or any of them is bound or to which any of the property of the Company or any of its affiliates is subject, the Company's articles of incorporation or bylaws, or any order, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Company, any of its affiliates or any of its or their properties; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body or other tribunal is required for the consummation of the transactions contemplated by this Agreement or the Prospectus in connection with the sale of the Certificates by the Company. Neither the Company nor any of its affiliates is a party to, bound by or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Company or any of its affiliates, which materially and adversely affects, or may in the future materially and adversely affect, (i) the ability of the Company to perform its obligations under the Pooling and Servicing Agreement or this 5 6 Agreement or (ii) the business, operations, results of operations, financial position, income, properties or assets of the Company. F. This Agreement has been duly and validly authorized, executed and delivered by the Company. The Pooling and Servicing Agreement will be duly executed and delivered by the Company and will constitute the legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or other similar laws affecting the enforcement of the rights of creditors, and (ii) general principles of equity, whether enforcement is sought in a proceeding at law or in equity. G. The Offered Certificates will conform in all material respects to the description thereof contained in the Prospectus, and the direction by the Company to the Trustee to execute, countersign, authenticate and deliver the Certificates will be duly and validly authorized and, when the Offered Certificates have been duly and validly executed, authenticated, issued and delivered in accordance with the Pooling and Servicing Agreement and sold to the Underwriters as provided herein and the Pricing Agreement, the Offered Certificates have been validly issued and outstanding and entitled to the benefits of the Pooling and Servicing Agreement. H. At the Closing Date, the Mortgage Loans will conform in all material respects to the description thereof contained in the Prospectus and the representations and warranties contained in this Agreement will be true and correct in all material respects. The representations and warranties set out in the Pooling and Servicing Agreement are hereby made to the Underwriters as though set out herein, and at the dates specified in the Pooling and Servicing Agreement, such representations and warranties were or will be true and correct in all material respects. I. The transfer of the Mortgage Loans to the Trust created by the related Pooling and Servicing Agreement (the "Trust") at the Closing Date will be treated by the Company for financial accounting and reporting purposes as a sale of assets and not as a pledge of assets to secure debt. J. The Company possesses all material licenses, certificates, permits or other authorizations issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by it and as described in the Prospectus and there are no proceedings, pending or, to the best knowledge of the Company, threatened, relating to the revocation or modification of any such license, certificate, permit or other authorization which singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the business, operations, results of operations, financial position, income, property or assets of the Company. 6 7 K. Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement and the Pooling and Servicing Agreement, or the execution and issuance of the Certificates have been or will be paid at or prior to the Closing Date. L. Except as disclosed by Form 8-K Event Date August 25, 1997, filed with the Commission, there has not been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company, its parent company or its subsidiaries, taken as a whole, from the date of the end of the most recent fiscal quarter of the Company for which financial statements (whether audited or unaudited) have been made publicly available (the "Date of Recent Company Financial Statements"), to the date hereof. M. The Pooling and Servicing Agreement will conform in all material respects to the description thereof contained in the Prospectus. N. The Company is not aware of (i) any request by the Commission for any further amendment of the Registration Statement or the Prospectus or for any additional information with respect to the offering of the Offered Certificates, (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose or (iii) any notification with respect to the suspension of the qualification of the Offered Certificates for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. O. Each assignment of Mortgage required to be prepared pursuant to the Pooling and Servicing Agreement is based on forms recently utilized by the Company with respect to mortgaged properties located in the appropriate jurisdiction and used in the regular course of the Company's business. Based on the Company's experience with such matters it is reasonable to believe that upon execution each such assignment will be in recordable form and will be sufficient to effect the assignment of the Mortgage to which it relates as provided in the Pooling and Servicing Agreement. P. Neither the Company nor the Trust will be subject to registration as an "investment company" under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Pooling and Servicing Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended, and the Trust is not required to be registered. Q. In connection with the offering of the Certificates in the State of Florida, the Company hereby certifies that it has complied with all provisions of Section 5.17.075 of the Florida Securities and Investor Protection Act. 7 8 Any certificate signed by any officer of the Company and delivered to the Underwriters in connection with the sale of the Offered Certificates to such Underwriters shall be deemed a representation and warranty as to the matters covered thereby by the Company to each person to whom the representations and warranties in this Section 2 are made. 3. Agreements of the Underwriters. A. The several Underwriters agree with the Company that upon the execution of the Pricing Agreement and authorization by the Underwriters of the release of the Offered Certificates of the related Series, the Underwriters shall offer such Offered Certificates for sale upon the terms and conditions set forth in the prospectus as amended or supplemented. B. Each Underwriter severally represents and agrees that: (i) it has not offered or sold and will not offer or sell, prior to the date six months after their date of issuance, any Offered Certificates to persons in the United Kingdom, except to persons whose activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted in and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act of 1986 with respect to anything done by it in relation to the Offered Certificates in, from or otherwise involving the United Kingdom; (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issuance of the Offered Certificates only if that person is of a kind described in Article 11(3) of the Financial Services Act of 1986 (Investment Advertisements) (Exceptions) Order 1997, or such person is one to whom the document can lawfully be issued or passed on; 8 9 (iv) no action has been or will be taken by such Underwriter that would permit a public offering of the Offered Certificates or distribution of the Prospectus or Prospectus Supplement or any Computational Materials or any other offering material in relation to the Offered Certificates in any non-U.S. jurisdiction where action for that purpose is required unless the Company has agreed to such actions and such actions have been taken; and (v) it understands that, in connection with the issuance, offer and sale of the Offered Certificates and with the distribution of the Prospectus or Prospectus Supplement or any Computational Materials or any other offering material in relation to the Offered Certificates in, to or from any non-U.S. jurisdiction, the Company has not taken and will not take any action, and such Underwriter will not offer, sell or deliver any Offered Certificates or distribute the Prospectus or Prospectus Supplement or any Computational Materials or any other offering material relating to the Offered Certificates in, to or from any non-U.S. jurisdiction except under circumstances which will result in compliance with applicable laws and regulations and which will not impose any liability, obligation or responsibility on the Company or the other Underwriters. 4. Purchase, Sale and Delivery of the Offered Certificates. The Company hereby agrees, subject to the terms and conditions hereof, to sell the Offered Certificates specified in the Pricing Agreement to the Underwriters, who, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, hereby agree, severally and not jointly, to purchase the entire aggregate principal amount of the Offered Certificates in the amounts set forth in Schedule I to such Pricing Agreement. At the time of issuance of the Certificates, the Mortgage Loans will be sold by the Company to the Trust pursuant to the Pooling and Servicing Agreement. The Company will be obligated, under the Pooling and Servicing Agreement, to service the Mortgage Loans either directly or through subservicers. The Offered Certificates to be purchased by the Underwriters will be delivered by the Company to the Underwriters (which delivery shall be made through the facilities of The Depository Trust Company ("DTC") or Cedel Bank, societe anonyme or the Euroclear System) against payment of the purchase price therefor, in an amount equal to the percentage of the aggregate original principal amount thereof as specified in the Pricing Agreement, plus interest accrued, if any, at the rate on the aggregate original principal amount thereof from the date specified in such Pricing Agreement to, but not including, the Closing Date, by a same day federal funds wire payable to the order of the Company. Settlement shall take place at the specified offices of Andrews & Kurth L.L.P., at 10:00 a.m., New York City time, on the date specified in the Pricing Agreement, or at such other place and at such other time thereafter (such time being herein referred to as the "Closing Date"), in each case as the Underwriters and the Company shall determine. The Offered Certificates will be 9 10 prepared in definitive form and in such authorized denominations as the Underwriters may request, registered in the name of Cede & Co., as nominee of DTC. It is a condition to the purchase and sale of each Class of Offered Certificates that the purchase and sale of each other Class of Offered Certificates occurs simultaneously. The Company agrees to have the Offered Certificates available for inspection and review by the Underwriters in Los Angeles not later than 11:00 a.m. New York City time on the business day prior to the Closing Date. 5. Covenants of the Company. The Company covenants and agrees with each Underwriter that: A. The Company will promptly advise the Representative and counsel to the Underwriters (i) when any amendment to the Registration Statement relating to the offering of the Offered Certificates shall have become effective, (ii) of any request by the Commission for any amendment to the Registration Statement or the Prospectus or for any additional information to the extent applicable to the offering of the Offered Certificates, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (iv) or the receipt by the Company of any notification with respect to the suspension of the qualification of the Offered Certificates for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will not file, and will use its commercially reasonable efforts to prevent ACAC from filing, any amendment to the Registration Statement or supplement to the Prospectus after the date of the Pricing Agreement and prior to the related Closing Date for the Offered Certificates unless the Company has furnished the Representative and counsel to the Underwriters copies of such amendment or supplement for their review prior to filing and will not file any such proposed amendment or supplement to which the Representative reasonably and promptly objects, unless such filing is required by law. The Company will use its commercially reasonable efforts to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if issued, to obtain as soon as possible the withdrawal thereof. B. If, at any time during the period in which the Prospectus is required by law to be delivered, any event occurs as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fat or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Prospectus to comply with the 1933 Act or the rules under the 1933 Act, the Company will promptly prepare and file with the Commission and shall use its commercially reasonable efforts to cause ACAC to promptly prepare and file, subject to Paragraph A of this Section 5, an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance and, if such amendment or supplement is required to be contained in a post-effective amendment to 10 11 the Registration Statement, will use its commercially reasonable efforts to cause such post-effective amendment of the Registration Statement to become effective as soon as possible, provided, however, that the Company will not be required to file any such amendment or supplement with respect to any Computational Materials or ABS Term Sheets incorporated by reference in the Prospectus other than any amendments or supplements of such Computational Materials or ABS Term Sheets that are furnished to the Company by the Underwriters pursuant to Section 9A hereof which the Company is required to file in accordance with Section 5K or 5L. C. The Company will furnish to the Underwriters, without charge, copies of the Registration Statement (including exhibits thereto), any documents incorporated therein by reference, and, so long as delivery of a prospectus by the Underwriters or a dealer may be required by the 1933 Act, as many copies of the Prospectus, as amended or supplemented, and any amendments and supplements thereto as the Underwriters may reasonably request. The Company will pay the expenses of printing all offering documents relating to the offering of the Offered Certificates. D. As soon as practicable, but not later than sixteen months after the effective date of the Registration Statement, the Company will cause the Trust to make generally available to holders of Offered Certificates statements of the Trust collectively covering a period of at least 12 months beginning after the effective date of the Registration Statement. Such statements will be filed with the Commission pursuant to the provisions of the Exchange Act. E. During a period of 20 calendar days from the Execution Time, neither the Company nor any affiliate of the Company will, without the Representative's prior written consent (which consent shall not be unreasonably withheld), enter into any agreement to offer or sell mortgage pass-through certificates backed by mortgage loans, except pursuant to this Agreement, or the Initial Purchaser Agreement in respect of the Private Class B Certificates. F. So long as any of the Offered Certificates are outstanding, the Company will cause to be delivered to the Underwriters, (i) all documents required to be distributed to the holders of the Offered Certificates, (ii) from time to time, any other information concerning the Trust filed with any government or regulatory authority that is otherwise publicly available, as the Underwriters may reasonably request, (iii) the annual statement as to compliance delivered to the Trustee pursuant to the Pooling and Servicing Agreement, (iv) the annual statement of a firm of independent public accountants furnished to the Trustee pursuant to the Pooling and Servicing Agreement as soon as such statement is filed by the Company with the Commission and (v) any information required to be delivered by the Company or the Servicer pursuant to Section 4.01 of the form of Pooling and Servicing Agreement heretofore delivered to the Representative. 11 12 G. The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement or the Pricing Agreement is consummated, will pay all expenses in connection with the transactions contemplated herein, including but not limited to (i) the expenses of printing (or otherwise reproducing) all documents relating to the offering and the fees and disbursements of its counsel incurred in connection with the issuance and delivery of the Offered Certificates, (ii) the preparation of all documents specified in this Agreement, (iii) any fees and expenses of the Trustee (including legal fees) that are not payable by or from the Trust, (iv) any accounting fees and disbursements relating to the offering of Offered Certificates, (v) any fees charged by rating agencies for rating the Offered Certificates, (vi) any reasonable fees and disbursements of counsel to the Underwriters relating to Blue Sky undertakings (vii) any reasonable fees and disbursements of counsel to the Underwriters in an amount not to exceed $5,000 per Series relating to the representation of the Underwriters with respect to the offering of the Offered Certificates of such Series and (viii) the fees and charges related to the filing with the Commission of such Current Reports on Form 8-K and such other materials as are contemplated hereby, whether pursuant to EDGAR or otherwise. Subject to the provisions of Section 7 hereof, the Company will not pay the fees and expenses of the Underwriters or their counsel except as specified above. H. The Company will enter into the Pooling and Servicing Agreement and all related agreements on or prior to the Closing Date. I. The Company will endeavor to qualify the Offered Certificates for sale to the extent necessary under any state securities or Blue Sky laws in any jurisdiction as may be reasonably requested by the Underwriters, if any, and will pay all expenses (including reasonable fees and disbursements of counsel to the Underwriters) in connection with such qualification and in connection with the determination of the eligibility of the Offered Certificates for investment under the laws of such jurisdiction as the Underwriters may reasonably designate, if any. J. The Company will file or cause to be filed with the Commission within fifteen days of the termination of the Commitment Period (as such term is defined in the related Pooling and Servicing Agreement), a Current Report on Form 8-K setting forth specific information concerning the description of the Mortgage Pool (the "Form 8-K - Mortgage Pool"). Without limiting the generality of any other provision hereof, such Form 8-K - Mortgage Pool shall be deemed to be a part of the Registration Statement and Prospectus from and after the date it is first filed with the Commission. K. The Company will cause any Computational Materials (as defined in Section 9A hereof) with respect to the Offered Certificates which are delivered by any Underwriter to the Company pursuant to Section 9A hereof to be filed with the Commission on a Current Report on Form 8-K (the "Form 8-K - Computational Materials") at or before the time of filing of the Prospectus pursuant to Rule 424(b) under the 1933 Act; provided, however, that the Company shall have no obligation to file any such materials which, in the reasonable determination of the Company after 12 13 consultation with such Underwriter (i) are not, based upon the advice of outside counsel to the Company, required to be filed pursuant to the Kidder Letters (as defined in Section 9A hereof) or (ii) contain any erroneous information or untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; it being understood, however, that the Company shall have no obligation to review or pass upon the accuracy or adequacy of, or to correct, any Computational Materials provided by any Underwriter to the Company pursuant to Section 9A hereof. The parties hereto agree that the Company shall have no liability for any failure to file such Computational Materials on such date if the related Underwriter has not delivered such materials to the Company one business day prior to the date such filing is to be made. L. The Company will cause any ABS Term Sheets (as defined in Section 9A hereof) with respect of the Offered Certificates which are delivered by any Underwriter to the Company pursuant to Section 9A hereof to be filed with the Commission on one or more Current Reports on Form 8-K (collectively, the "Form 8-K - ABS Term Sheets") (i) at or before the time of filing of the Prospectus pursuant to Rule 424(b) under the 1933 Act, in the case of Structural Term Sheets (as defined in Section 9A hereof) and (ii) within two business days of first use in the case of Collateral Term Sheets (as defined in Section 9A hereof); provided, however, that the Company shall have no obligation to file any such materials which, in the reasonable determination of the Company after consultation with such Underwriter (i) are not, based upon advice of outside counsel to the Company, required to be filed pursuant to the PSA Letter (as defined in Section 9A hereof), (ii) do not contain the legends required by the PSA Letter or (iii) contain erroneous information or contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; it being understood, however, that the Company shall have no obligation to review or pass upon the accuracy or adequacy of, or to correct, any ABS Term Sheets provided by any Underwriter to the Company pursuant to Section 9A hereof. The parties hereto agree that the Company shall have no liability for any failure to file such ABS Term Sheets on such dates if the related Underwriter has not delivered such materials to the Company one business day prior to the date such filing is to be made. 6. Conditions of the Underwriters' Obligation. The obligation of the Underwriters to purchase and pay for the Offered Certificates of a Series as provided herein and the Pricing Agreement shall be subject to the accuracy as of the date hereof, the Execution Time and the applicable Closing Date (as if made at such Closing Date) of the representations and warranties of the Company contained herein (including those representations and warranties set forth in the Pooling and Servicing Agreement and incorporated herein), to the accuracy of the statements of the Company made in any certificate or other document delivered pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following additional conditions: 13 14 A. The Registration Statement shall have become effective no later than the date hereof, and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened, and the Prospectus shall have been filed pursuant to Rule 424(b) of the 1933 Act as shall be required pursuant to such Rule. B. The Underwriters shall have received the Pooling and Servicing Agreement and the Offered Certificates in form and substance satisfactory to the Underwriters, duly executed by all signatories required pursuant to respective terms thereof. C. (1) The Underwriters hall have received the favorable opinion of Andrews & Kurth L.L.P., special counsel to the Company, or of such other counsel to the Company as shall be acceptable to the Underwriters, such opinion or opinions, dated the Closing Date, in form and substance satisfactory to the Underwriters, and collectively covering the substantive matters referred to in Appendix A attached hereto. (2) The Underwriters shall have received the favorable opinion of Stroock & Stroock & Lavan LLP, special counsel to the Underwriters, dated the Closing Date, with respect to the Pooling and Servicing Agreement, the Certificates of such Series, the due authorization, execution and delivery of this Agreement and the Pricing Agreement, and such other matters as the Underwriters may reasonably request. In rendering their opinions, the counsel described in this Paragraph C may rely, as to matters of fact, on certificates of responsible officers of the Company, the Trustee and public officials. Such opinions may also assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than the Company. D. The Underwriters shall have received a letter from Price Waterhouse LLP, dated the date of the Prospectus Supplement, in form and substance satisfactory to the Underwriters, to the effect that they have performed certain specified procedures requested by the Underwriters with respect to the information set forth in the Prospectus and certain matters relating to the Company. E. The Class A Certificates shall have been rated in the highest rating category by Moody's Investors Service, Inc. ("Moody's") and Fitch Investors Service, L.P. ("Fitch"), and such ratings shall not have been rescinded. The Class M-1A and Class M-1F Certificates shall have been rated "Aa2" by Moody's and "AA+" by Fitch, and such ratings shall not have been rescinded. The Class M-2F and Class M-2A Certificates shall have been rated "A2" by Moody's and "A+" by Fitch, and such ratings shall not have been rescinded. The Class B-1F Certificates shall have been rated "Baa2" by Moody's and "BBB" by Fitch, and such ratings shall not have been rescinded. The Class B-1A Certificates shall have been rated "Baa3" by Moody's and "BBB" by Fitch, and such ratings shall not have been rescinded. The Underwriters and counsel for the 14 15 Underwriters shall have received copies, addressed to the Underwriters and upon which they may rely, of any opinions of counsel supplied to the rating organizations relating to any matters with respect to the Certificates. Any such opinions shall be dated the Closing Date. F. The Underwriters shall have received from the Company a certificate, signed by the president, an executive vice president or a vice president of the Company, dated the Closing Date, to the effect that the signer of such certificate has carefully examined the Registration Statement (excluding Form 8-K Computational Materials and Form 8-K ABS Term Sheets), the Pooling and Servicing Agreement and this Agreement and that, to the best of his or her knowledge based upon reasonable investigation, the representations and warranties of the Company in this Agreement, as of the Closing Date, in the Pooling and Servicing Agreement and in all related agreements, as of the date specified in such agreements, are true and correct, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date and that no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the best of his or her knowledge, are contemplated by the Commission.. The Company shall attach to such certificate an incumbency certificate and shall certify in an officer's certificate a true and correct copy of its articles of incorporation and bylaws which are in full force and effect as of each relevant date and on the date of such certificate and a certified true copy of the resolutions of its Board of Directors with respect to the transactions contemplated herein. G. The Underwriters shall have received a favorable opinion of counsel to the Trustee, dated the Closing Date, in form and substance satisfactory to the Underwriters and covering the substantive matters referred to in Appendix B attached hereto. In rendering such opinion, such counsel may rely, as to matters of fact, on certificates of responsible officers of the Company, the Trustee and public officials. Such opinion may also assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than the Trustee. 15 16 H. The Underwriters shall have received from the Trustee a certificate, signed by the president, a senior vice president or a vice president of the Trustee, dated the Closing Date, to the effect that each person who, as an officer or representative of the Trustee, signed or signs the Certificates, the Pooling and Servicing Agreement or any other document delivered pursuant hereto, on the Execution Time or on the Closing Date, in connection with the transactions described in the Pooling and Servicing Agreement was, at the respective times of such signing and delivery, and is now, duly elected or appointed, qualified and acting as such officer or representative, and the signatures of such persons appearing on such documents are their genuine signatures. I. Reserved. J. On or prior to the Closing Date, there has been no downgrading, nor has any notice been given of (i) any intended or potential downgrading or (ii) any review or possible changes in rating the direction of which has not been indicated, in the rating accorded and originally requested by the Company relating to any previously issued mortgage pass-through securities of the Company by any "nationally recognized statistical rating organization" (as such term is defined for purposes of the Exchange Act). K. Reserved. L. Except as disclosed by Form 8-K Event Date August 25, 1997, filed with the Commission, there has not occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, since the Date of the Company's Recent Financial Statements, of the Company, its parent company or its subsidiaries that is in the Representative's judgment material and adverse and that makes it in the Representative's judgment impracticable to market the Offered Certificates on the terms and in the manner contemplated in the Prospectus. M. The Underwriters and counsel for the Underwriters shall have received copies of any separate opinions of counsel to the Company supplied to the Trustee or any of Moody's or Fitch relating to matters with respect to the Offered Certificates, and such opinions shall be dated the Closing Date and addressed to the Underwriters and upon which they may rely. N. The Underwriters shall have received such further information, certificates and documents as the Underwriters may reasonably have requested not less than one (1) full business day prior to the Closing Date. O. There shall have been executed and delivered by Aames Financial Corporation, the corporate parent of the Company ("AFC"), a letter agreement with the Underwriters, pursuant to which AFC agrees to become jointly and severally liable with the Company for the payment of the Joint and Several Obligations (as defined in such 16 17 letter agreement). Such letter agreement with the Underwriters is substantially in the form of Exhibit A hereto. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects, as determined by the Representative and counsel to the Underwriters, when and as provided in this Agreement, this Agreement and/or Pricing Agreement and all obligations of the Underwriters hereunder and thereunder, may be canceled on, or at any time prior to, the Closing Date by the Representative. Notice of such cancellation shall be given to the Company in writing, or by telephone or telegraph confirmed in writing. The Underwriters and the Company shall receive, subsequent to the Closing Date, a letter from Price Waterhouse LLP, dated on or before the filing of the Form 8-K - Mortgage Pool in form and substance satisfactory to the Underwriters, to the effect that they have performed certain specified procedures requested by the Underwriters with respect to the information set forth in such Form 8-K - Mortgage Pool. 7. Expenses. If the sale of the Certificates of any Series provided for herein is not consummated by reason of a default by the Company in its obligations hereunder (including the failure to satisfy any of the conditions specified in Section 6), except in the case of a termination of this Agreement in accordance with Section 12 hereof, then the Company will reimburse the Underwriters, upon demand, for all reasonable out-of-pocket expenses (including, but not limited to, the reasonable fees and expenses of their counsel) that shall have been incurred by them in connection with their investigation with regard to the Company and the Offered Certificates and the proposed purchase and sale of the Offered Certificates. 8. Indemnification and Contribution. A. Regardless of whether any Offered Certificates are sold, the Company will indemnify and hold harmless each Underwriter, each of their respective officers and directors and each person who controls any Underwriter within the meaning of the 1933 Act or the Exchange Act, against any and all losses, claims, damages, or liabilities (including the cost of any investigation, legal and other expenses incurred in connection with and amounts paid in settlement of any action, suit, proceeding or claim asserted), joint or several, to which they or any of them may become subject, under the 1933 Act, the Exchange Act or other federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement or arise out of or are based upon the omission or alleged omission (and in the case of any Computational Materials, as to which a Mortgage Pool Error (as defined below) occurred) to state therein a material fact necessary to make the statements therein not misleading or (ii) in the Prospectus or arise out of or are based upon the omission or alleged omission (and in the case of any Computational Materials, as to which a Mortgage Pool Error occurred) to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse each 17 18 such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that (a) the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made therein (x) in reliance upon and in conformity with written information furnished to the Company by or on behalf of an Underwriter, as described (and to the extent described) in Section 9A of this Agreement, or (y) in the Form 8-K - Computational Materials or in any Form 8-K - ABS Term Sheet, or any amendment or supplement thereof, except to the extent that any untrue statement or alleged untrue statement therein results (or is alleged to have resulted) directly from, in the case of the Form 8-K - Computational Materials, any Mortgage Pool Error, or, in the case of any Form 8-K - ABS Term Sheets, any error in Company Provided Information that was used in the preparation of (X) any Computational Materials or ABS Term Sheets (or amendments or supplements thereof) included in the Form 8-K Computational Materials or Form 8-K - ABS Term Sheets (or amendment or supplement thereof), or (Y) any written or electronic materials furnished to prospective investors on which the Computational Materials or Collateral Term Sheets (or amendments or supplements) were based, (b) such indemnity with respect to any Corrected Statement (as defined below) in such Prospectus (or supplement thereto) shall not inure to the benefit of such Underwriter (or any person controlling such Underwriter) from whom the person asserting any loss, claim, damage or liability purchased the Offered Certificates that are the subject thereof if such person did not receive a copy of a supplement to such Prospectus at or prior to the confirmation of the sale of such Offered Certificates and the untrue statement or omission of a material fact contained in such Prospectus (or supplement thereto) was corrected (a "Corrected Statement") in such other supplement and such supplement timely was furnished by the Company to such Underwriter within a reasonable time prior to the delivery of such confirmation, and (c) such indemnity with respect to any error in Company Provided Information or any Mortgage Pool Error shall not inure to the benefit of such Underwriter (or any person controlling such Underwriter) from whom the person asserting any loss, claim, damage or liability received any Computational Materials or ABS Term Sheets (or any written or electronic materials on which the Computational Materials or any ABS Term Sheets are based) that were prepared on the basis of such erroneous Company Provided Information or Mortgage Pool Error, if, within a reasonable time prior to the time of confirmation of the sale of the applicable Offered Certificates to such person, the Company notified such Underwriter in writing of such error or provided in written or electronic form information superseding or correcting such error (in any such case, a "Corrected Error"), and such Underwriter failed to notify such person thereof or to actually or constructively deliver to such person corrected Computational Materials or ABS Term Sheets (or underlying written or electronic materials). This indemnity agreement will be in addition to any liability which the Company may otherwise have. "Mortgage Pool Error" shall mean any error or omission in the information concerning the characteristics of the Mortgage Loans furnished by or on behalf of the Company to any of the Underwriters in writing or by electronic transmission. 18 19 B. Regardless of whether any Offered Certificates are sold, each Underwriter, will severally indemnify and hold harmless the Company, each of its officers and directors and each person, if any, who controls the Company within the meaning of the 1933 Act or the Exchange Act against any losses, claims, damages or liabilities to which they or any of them become subject under the 1933 Act, the Exchange Act or other federal or state law or regulation, at common law or otherwise, to the same extent as the foregoing indemnity, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading or in (ii) the Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made therein (a) in reliance upon and in conformity with written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter, as described in Section 9A of this Agreement, specifically for use in the preparation thereof and so acknowledged in writing, or (b) any Computational Materials or ABS Term Sheet (or amendments or supplements thereof) furnished to the Company by such Underwriter pursuant to Section 9A hereof and incorporated by reference in such Registration Statement or the related Prospectus or any amendment or supplement thereof (except that no such indemnity shall be available for any losses, claims, damages or liabilities, or actions in respect thereof resulting from any error in Company Provided Information or any Mortgage Pool Error, other than a Corrected Error), and such Underwriter or the Underwriters, as the case may be, will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending against such loss, claim, damage, liability or action. C. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Paragraphs A and B above, such person (hereinafter called the indemnified party) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the indemnifying party) in writing thereof; but the omission to notify the indemnifying party shall not relieve such indemnifying party from any liability which it may have to any indemnified party otherwise than under such Paragraph. The indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, or (ii) the named parties to any such proceeding (including 19 20 any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or because different defenses are available to such parties. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Representative in the case of parties indemnified pursuant to Paragraph A and by the Company in the case of parties indemnified pursuant to Paragraph B. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated above, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. D. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages or liabilities referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall: (i) in the case of any such losses, claims, damages or liabilities which do not arise out of or are not based upon any untrue statement or omission of a material fact in any Computational Materials or ABS Term Sheet (or any amendments or supplements thereof) contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the sale of the Offered Certificates; and (ii) in the case of any such losses, claims, damages or liabilities which arise out of or are based upon any untrue statements or omissions of a material fact in any Computational Materials or ABS Term Sheet (or any amendments or supplements thereof), contribute to the amount paid or payable by such 20 21 indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect both the relative benefits received by the Company and the Underwriters from the sale of the Offered Certificates and the relative fault of the Company and of the applicable Underwriter or Underwriters in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in such proportion so that the Underwriters are responsible for that portion determined by multiplying the total amount of such losses, claims, damages or liabilities, including legal and other expenses, by a fraction, the numerator of which is (x) the excess of the Aggregate Resale Price of the Offered Certificates of the related Series over the aggregate purchase price of the Offered Certificates specified in the Pricing Agreement and the denominator of which is (y) the Aggregate Resale Price of such Offered Certificates, and the Company is responsible for the balance, provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of the immediately preceding sentence, the "Aggregate Resale Price" of the Offered Certificates at the time of any determination shall be the weighted average of the purchase prices (in each case expressed as a percentage of the aggregate principal amount of the Offered Certificates so purchased), determined on the basis of such principal amounts, paid to the Underwriters by all initial purchasers of the Offered Certificates from the Underwriters. The relative fault of the Company and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact of the omission or alleged omission to state a material fact relates to information supplied by the Company or by the applicable Underwriter or Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' obligations in this Paragraph D to contribute are several in proportion to their respective underwriting obligations and are not joint. 21 22 E. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Paragraph D. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in Paragraph D shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of Section 8D(i), no Underwriter shall be required to contribute any amount by which the difference between the Aggregate Resale Price and the aggregate purchase price of the Offered Certificates specified in the Pricing Agreement exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. F. The Company and the Underwriters each expressly waive, and agree not to assert, any defense to their respective indemnification and contribution obligations under this Section 8 which they might otherwise assert based upon any claim that such obligations are unenforceable under federal or state securities laws or by reasons of public policy. G. The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriters within the meaning of the 1933 Act or the Exchange Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability that the Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company and to each person, if any, who controls the Company within the meaning of the 1933 Act or the Exchange Act; provided, however, that in no event shall the Company or the Underwriters be liable for double indemnification. 9. Information Supplied by Underwriters; Representations and Warranties of the Underwriters. A. The Underwriters and the Company agree that the following constitute the only information furnished by or on behalf of the Underwriters to the Company for the purposes of Sections 2B and 8A hereof: (i) the statements set forth in the last paragraph on the front cover page of the Prospectus Supplement regarding market making, and information under the heading "Underwriting" in the Prospectus Supplement, to the extent such information relates to all of the Underwriters and not to any particular Underwriter or affiliate of any particular Underwriter, have been supplied by or on behalf of all of the Underwriters jointly; 22 23 (ii) the information under the heading "Underwriting" in the Prospectus Supplement, to the extent such information relates to a particular Underwriter or affiliate of such Underwriter, and the information contained in any Form 8-K - Computational Materials and in any Form 8-K - ABS Term Sheets to the extent supplied to the Company by or on behalf of such Underwriter to be filed in the related Current Report on Form 8-K, in each case excluding any Company Provided Information and only to the extent not substantially identical in form, substance, scope, content and context to any information set forth in the Prospectus, has been supplied by such Underwriter and shall relate to and be the several responsibility of such Underwriter and no other Underwriter. "Computational Materials" shall mean those materials delivered by an Underwriter to the Company within the meaning of the no-action letter dated May 20, 1994 issued by the Division of Corporation Finance of the Commission to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated, and Kidder Structured Asset Corporation and the no-action letter dated May 27, 1994 issued by the Division of Corporation Finance of the Commission to the Public Securities Association (together, the "Kidder Letters") for which the filing of such material is a condition of the relief granted in such letters. "ABS Term Sheet" shall mean those materials delivered by an Underwriter to the Company in the form of "Structural Term Sheets" or "Collateral Term Sheets", in each case within the meaning of the no-action letter dated February 13, 1995 issued by the Division of Corporation Finance of the Commission to the Public Securities Association (the "PSA Letter") for which the filing of such material is a condition of the relief granted in such letter. "Company Provided Information" shall mean any information presented in any ABS Term Sheet (or underlying materials) provided to the Underwriters by or on behalf of the Company specifically for use in ABS Term sheets in writing or through electronic or magnetic data storage or transmission methods, in tabular, graphic or textual form, regardless of whether or not such information is presented in any ABS Term Sheets in the same format in which such information was provided to the Underwriters, but shall not include (i) any such information to the extent that, as presented in any ABS Term Sheet, such information contains, or is alleged to contain, any untrue statement of a material fact or omits, or is alleged to omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading due to any (a) typographical or similar error or (b) stylistic, contextual or other presentational considerations with respect to such ABS Term Sheets, including the format of tables, the phraseology of text or the placement or juxtaposition of such information in relation to any other information presented therein (whether or not Company Provided Information), in each case, not present in such information (in the aggregate), or in the manner of presentation or communication thereof to the Underwriters, when provided to the Underwriters by the Company or (ii) any information set forth in an ABS Term Sheet to the extent that such information, as presented in the Prospectus is not substantially identical in form, substance, scope, content or context thereto. Each Underwriter shall deliver to the Company (or counsel to the Company) a complete copy of all materials (which, if reasonably requested by the Company, shall be on computer compatible disk or such other acceptable electronic form) provided by such Underwriter to prospective investors in such Offered Certificates which constitute or are deemed to constitute Computational Materials or ABS Term Sheets, at least one business day before the date or dates on which the related Form 8-K - Computational Materials or Form 8-K - ABS 23 24 Term Sheets relating to the Offered Certificates are required to be filed by the Company with the Commission pursuant to Section 5K or 5L hereof. B. Each Underwriter severally represents and warrants to and agrees with the Company, that, as of the date of the related Closing Date: (i) any Computational Materials and ABS Term Sheets furnished by it to the Company pursuant to Section 9A hereof constitute (either in original, aggregated or consolidated form) all of the materials furnished by it to prospective investors prior to the time of delivery thereof to the Company and that it reasonably believes that such materials constitute the type of materials contemplated by the Kidder Letters and the PSA Letter; and (ii) on the date of delivery of any such Computational Materials or ABS Term Sheets to the Company pursuant to this Section 9 and on the related Closing Date such Computational Materials and ABS Term Sheets (or materials) did not and will not include any untrue statement of a material fact, or, when read in conjunction with the related Prospectus and Prospectus Supplement, omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Notwithstanding the foregoing, the Underwriters make no representation or warranty as to whether any Computational Materials or ABS Term Sheets (or any written or electronic materials on which such Computational Materials or ABS Term Sheets are based) included or will include any untrue statement resulting directly from any Mortgage Pool Error or, in the case of an ABS Term Sheet, any error in Company Provided Information. Each Underwriter agrees that it will not represent to investors that any Computational Materials or ABS Term Sheets delivered thereto were prepared by, or disseminated on behalf of, the Company. 10. Notices. All communications hereunder shall be in writing and, if sent to the Underwriters, shall be mailed or delivered or telecopied and confirmed in writing to the Representative at One New York Plaza, 15th Floor, New York, New York 10038, Attention: Asset-Backed Finance Group, and, if sent to the Company, shall be telegraphed and confirmed in writing to the Company at 350 South Grand Avenue, Los Angeles, California 90071, Attention: Gregory J. Witherspoon; with a copy addressed to Andrews & Kurth L.L.P., 601 S. Figueroa Street, Suite 4200, Los Angeles, California 90017, Attention: David J. Johnson, Jr. 11. Survival. All representations, warranties, covenants and agreements of the Company contained herein or in agreements or certificates delivered pursuant hereto, the agreements of the Underwriters and the Company contained in Section 8 hereof, and the representations, warranties and agreements of the Underwriters contained in Section 3 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters or any controlling persons, or any subsequent purchaser or the 24 25 Company or any of its officers, directors or any controlling persons, and shall survive delivery of and payment for the Certificates. The provisions of Sections 5, 7 and 8 hereof shall survive the termination or cancellation of this Agreement or any Pricing Agreement. 12. Termination. The Underwriters shall have the right to terminate this Agreement and/or the Pricing Agreement by giving notice as hereinafter specified at any time at or prior to the applicable Closing Date if (a) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Chicago Board Options Exchange, the Chicago Board of Trade or the London Stock Exchange Limited, (b) trading of any securities of the Company or AFC shall have been suspended on any exchange or in any over-the-counter market, (c) a general moratorium on commercial banking activities shall have been declared by any of the federal, California or New York State authorities, (d) there shall have occurred any outbreak or escalation of hostilities or any change in the national or international financial markets or any calamity or crisis which, in the Representative's reasonable judgment, is material and adverse, and, in the case of any of the events specified in clauses (a) through (d), such event singly or together with any other such event makes it in the Representative's reasonable judgment impractical to market the Offered Certificates. Any such termination shall be without liability of any other party except that the provisions of Paragraph G of Section 5 (except with respect Section 5G(vii)) and Section 8 hereof shall at all times be effective. If the Underwriters elect to terminate this Agreement and/or the Pricing Agreement as provided in this Section 12, the Company shall be notified promptly by the Representative by telephone, telegram or facsimile transmission, in any case, confirmed by letter. 13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns (which successors and assigns do not include any person on purchasing a Certificate from the Underwriters), and the officers and directors and controlling persons referred to in Section 8 hereof and their respective successors and assigns, and no other persons will have any right or obligations hereunder. 14. Applicable Law; Venue. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Any action or proceeding brought to enforce or arising out of any provision of this Agreement shall be brought only in a state or federal court located in the Borough of Manhattan, New York City, New York, and the parties hereto expressly consent to the jurisdiction of such courts and agree to waive any defense or claim of forum non conveniens they may have with respect to any such action or proceeding brought. 15. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall together constitute but one and the same instrument. 25 26 16. Amendments and Waivers. This Agreement may be amended, modified, altered or terminated, and any of its provisions waived, only in a writing signed on behalf of the parties hereto. Very truly yours, AAMES CAPITAL CORPORATION By: /s/ Mark E. Elbaum -------------------------------- Name: Mark E. Elbaum Title: Senior Vice President-Finance PRUDENTIAL SECURITIES INCORPORATED By: /s/ Mary Alice Kohs --------------------------------- Name: Mary Alice Kohs Title: Vice President For itself and as Representative of the several Underwriters named in Schedule I to the Pricing Agreement 27 EXHIBIT A September 15, 1997 Prudential Securities Incorporated as Representative of the several Underwriters named in Schedule I to the Pricing Agreement c/o Prudential Securities Incorporated One New York Plaza, 15th Floor New York, New York 10038 Re: Underwriting Agreement for Aames Mortgage Trust, dated September 15, 1997 the "Underwriting Agreement") between Aames Capital Corporation ("Aames") and Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I to the Pricing Agreement dated September 15, 1997 (the "Pricing Agreement") -------------------------------------------------------------------------- Ladies and Gentlemen: Pursuant to the Underwriting Agreement and Pricing Agreement (collectively, the "Designated Agreement"), Aames has undertaken certain financial obligations with respect to the indemnification of the Underwriters with respect to the Registration Statement, and the Prospectus described in the Designated Agreement. Any financial obligations of Aames under the Designated Agreement, whether or not specifically enumerated in this paragraph, are hereinafter referred to as the "Joint and Several Obligations;" provided, however, that "Joint and Several Obligations" shall mean only the financial obligations of Aames under the Designated Agreement (including the payment of money damages for a breach of any of Aames' obligations under the Designated Agreement, whether financial or otherwise) but shall not include any obligations not relating to the payment of money. As a condition of its execution of the Designated Agreement, the Underwriters have required the undersigned, Aames Financial Corporation ("AFC"), the parent corporation of Aames, to acknowledge its joint and several liability with Aames for the payment of the Joint and Several Obligations under the Designated Agreement. Now, therefore, the Underwriters and AFC do hereby agree that: (i) AFC hereby agrees to be absolutely and unconditionally jointly and severally liable with Aames to the Underwriters for the payment of the Joint and Several Obligations under the Designated Agreement. Exhibit A-1 28 (ii) AFC may honor its obligations hereunder either by direct payment of any Joint and Several Obligations or by causing any Joint and Several Obligations to be paid to the Underwriters by Aames or another affiliate of AFC. Exhibit A-2 29 Capitalized terms used herein and not defined herein shall have their respective meanings as set forth in the Designated Agreement. Very truly yours, AAMES FINANCIAL CORPORATION By: -------------------------------------- Name: Title: PRUDENTIAL SECURITIES INCORPORATED By: -------------------------------------- Name: Title: For itself and as Representative of the several Underwriters named in Schedule I to the Pricing Agreement Exhibit A-3 30 APPENDIX A FORM OF OPINION OF COUNSEL TO THE COMPANY 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. 2. AFC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 3. The Company has full corporate power and corporate authority to own its assets and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Pooling and Servicing Agreement, the Underwriting Agreement and Pricing Agreement (the "Documents"). 4. AFC has full corporate power and corporate authority to own its assets and to conduct its business as now being conducted and to enter into and perform its obligations under the Letter Agreement. 5. The Company is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction where it owns or leases any real property or has any permanently located employees. 6. The Company has all material licenses, franchises and permits of and from all public, regulatory or governmental officials or bodies, necessary to (i) conduct its business as now being conducted and as described in the Prospectus, and (ii) perform its obligations under the Documents. 7. The execution, acknowledgment, delivery and performance by the Company of the Documents have been duly authorized by all requisite corporate action. 8. The execution, acknowledgment, delivery and performance by AFC of the Letter Agreement have been duly authorized by all requisite corporate action. 9. Neither the execution or delivery of, nor the performance by the Company of its obligations under, the Documents, nor the offer, issuance, sale or delivery of the Certificates (i) violates any of the provisions of the Company's Articles of Incorporation or By-laws, (ii) violates any judgment, decree, writ, injunction, award, determination or order known to such counsel which is applicable to Company or any of its properties, or by which the Company or any of its properties are bound or affected, (iii) conflicts with, or results in a breach of, or constitutes a default under, any of the provisions of any of the Company's material contracts, or (iv) results in the creation or imposition of any lien on any of its properties pursuant to the terms of any of the Company material contracts. Appendix A-1 31 10. Neither the execution or delivery of, nor the performance by AFC of its obligations under, the Letter Agreement (i) violates any of the provisions of AFC's Certificate of Incorporation or By-laws, (ii) violates any judgment, decree, writ, injunction, award, determination or order known to such counsel which is applicable to AFC or any of its properties, or by which AFC or any of its properties are bound or affected, (iii) conflicts with, or results in a breach of, or constitutes a default under, any of the provisions of any of AFC's material contracts, or (iv) results in the creation or imposition of any lien on any of its properties pursuant to the terms of any of AFC's material contracts. 11. No consent, approval or authorization from, or registration or filing with or notice to, any court or governmental body is required to be obtained, made or given by the Company in connection with its authorization, execution, delivery of, or performance of its obligations under the Documents or in connection with the issuance, sale or delivery of the Offered Certificates. 12. No consent, approval or authorization from, or registration or filing with or notice to, any court or governmental body is required to be obtained, made or given by AFC in connection with its authorization, execution, delivery of, or performance of its obligations under the Letter Agreement. 13. Based upon such counsel's knowledge, there is no pending or threatened action, suit, proceeding or investigation before or by any court, administrative agency, arbitrator or governmental body against or affecting the Company which, if decided adversely, would materially and adversely affect (i) the ability of the Company to perform its obligations under, or the validity or enforceability of, the Documents, (ii) any mortgaged property or title of any mortgagor to such mortgaged property, or (iii) the Trustee's ability to foreclose or otherwise enforce the liens of the mortgage loans. 14. The Registration Statement is effective under the 1933 Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, or proceeding for that purpose instituted or threatened by the Commission. 15. The Registration Statement as of its effective date and the Prospectus as of the date there of, other than the Computational Materials, numerical, financial and statistical data included or incorporated by reference in the Registration Statement and the Prospectus, as to which such counsel need not express an opinion, appeared on its face to be appropriately responsive in all material respects to the applicable requirements of the 1933 Act and the rules and regulations thereunder, except that such counsel need not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus except for those as contemplated by paragraph 20 and 21 below. 16. The execution and delivery of each of the Underwriting Agreement and the Pricing Agreement has been duly authorized by all necessary corporate action of the Company and each of the Underwriting Agreement and the Pricing Agreement has been duly executed and delivered by the Company; the execution and delivery of the Letter Agreement has been duly authorized by all necessary corporate action of AFC and the Letter Agreement has been duly executed and delivered by AFC. Appendix A-2 32 17. The execution and delivery of the Pooling and Servicing Agreement has been duly authorized by the Company and the Agreement has been duly executed and delivered by the Company and constitutes a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms except as enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium or other similar laws relating to or affecting creditors' rights generally or (b) general principles of equity or public policy, regardless of whether such enforceability is considered in a proceeding in equity or at law. 18. The Offered Certificates will, when duly executed and authenticated as specified in the Pooling and Servicing Agreement and delivered by the Trustee on behalf of the Trust in exchange for the Mortgage Loans in the related Mortgage Loan Group and the other assets conveyed by the Company to the Trust pursuant to the Pooling and Servicing Agreement, be entitled to the benefits of the Pooling and Servicing Agreement afforded to the related Class. 19. The Offered Certificates and the Pooling and Servicing Agreement conform in all material respects to the descriptions thereof contained in the Prospectus. 20. The statements in the base Prospectus and the Prospectus Supplement, as the case may be, under the headings "Risk Factors," "Certain Legal Aspects of the Mortgage Loans," "Certain Federal Income Tax Considerations," and "ERISA Considerations," to the extent that they constitute matters of California, New York or federal law or legal conclusions with respect thereto, are correct in all material respects to the extent of those consequences or aspects that are discussed. 21. Each of the REMIC Pools as described in the Pooling and Servicing Agreement will qualify as a "real estate mortgage investment conduit" ("REMIC") within the meaning of Section 860D of the Internal Revenue Code of 1986, as amended (the "Code"), the Offered Certificates and Class C Certificates described in the Prospectus and issued pursuant to the Pooling and Servicing Agreement will be treated as "regular interests" in the REMIC for purposes of Code Section 860G(a)(1) and the Class R Certificates issued pursuant to the Pooling and Servicing Agreement will be treated as the "residual interest" in the REMIC for purposes of Code Section 860G(a)(2), assuming: (i) an election is made to treat each REMIC Pool as a REMIC, (ii) compliance with the Pooling and Servicing Agreement and compliance with changes in the law, including any amendments to the Code or applicable Treasury regulations thereunder. None of the REMIC Pools will be subject to California income or franchise tax in effect on the date of such opinion, as long as such REMIC Pool complies with any changes in the statutory and regulatory requirements of California law. Such counsel may state that a REMIC Pool may, however, be subject to California income or franchise tax in certain circumstances where federal income tax is also imposed, such as in the case of net income from foreclosure property; and in addition, a REMIC Pool may be subject to the minimum tax imposed under the California Revenue and Taxation Code Sections specified therein. 22. The Pooling and Servicing Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended, and the Trust created thereby is not required to be registered, Appendix A-3 33 and neither the Company nor AFC is an "investment company" as such term is defined, under the Investment Company Act of 1940, as amended. 23. Neither the transfer of the Mortgage Loans to the Trust, the issuance and sale of the Offered Certificates to the Underwriters pursuant to the Underwriting Agreement, the compliance by the Company with other provisions of the Underwriting Agreement, the Pooling and Servicing Agreement and the Certificates, nor the consummation of the transactions therein contemplated as to the transfer of the Mortgage Loans and the sale of the Offered Certificates by the Company require the consent, approval, authorization, order, registration or qualification of or with any court or governmental authority, except such as have been obtained or effected under the 1933 Act (and except with respect to any consent, approval, authorization, registration or qualification which may be required under state securities or Blue Sky laws or with respect to the purchase and sale of the retained Certificates, as to which matters such counsel need not express an opinion) and such other approvals as have been obtained, or conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, the charter or bylaws of the Company, or any statute or regulation applicable to the Company or, to the best of such counsel's knowledge, any judgment, decree or order applicable to the Company of any court, regulatory body, administrative agency or other governmental authority. 24. Assuming compliance with the provisions of the Pooling and Servicing Agreement, and subject to the limitations and conditions set forth therein, the Trustee and the Company, acting in its capacity as Servicer under the terms of the Pooling and Servicing Agreement, will be entitled to enforce the terms of each Note and Mortgage in accordance with their respective terms, except to the extent such enforcement may be limited by (a) bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium or other similar laws relating to or affecting creditors' rights generally or (b) general principles of equity or public policy, regardless of whether such enforceability is considered in a proceeding in equity or at law. In addition, such counsel shall state that nothing has come to their attention that would lead them to believe that the Registration Statement (other than the Computational Materials, the financial, numerical, statistical and quantitative information included or incorporated by reference therein, as to which such counsel need not make any statement), at the Effective Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus (other than the Computational Materials, the financial, numerical, statistical and quantitative information included or incorporated by reference therein, as to which such counsel need not make any statement), at its issue date or at the date of the Closing, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Appendix A-4 34 APPENDIX B FORM OF OPINION OF COUNSEL TO TRUSTEE 1. The Trustee is a national banking association with trust powers, duly organized and validly existing in good standing under the laws of the United States of America, and has all requisite power and authority to enter into the Pooling and Servicing Agreement and perform the obligations of trustee thereunder. 2. The Pooling and Servicing Agreement has been duly authorized, executed, and delivered by the Trustee and constitutes the legal, valid, and binding obligation of the Trustee enforceable against the Trustee in accordance with its terms, except as enforceability may be limited by applicable bankruptcy and insolvency laws and other similar laws affecting the enforcement of creditors' rights generally and by general equity principles. 3. The execution and delivery of the Pooling and Servicing Agreement by the Trustee and the performance by the Trustee of its terms do not conflict with or result in a violation (A) of any law or regulation of the United States of America or the State of California governing the banking or trust powers of the Trustee, or (B) the Articles of Association or By-laws of the Trustee. 4. No approval, authorization, or other action by, or filing with, any governmental authority of the United States of America or the State of California having jurisdiction over the banking or trust powers of the Trustee is required in connection with its execution and delivery of the Pooling and Servicing Agreement or the performance by the Trustee of the terms of the Pooling and Servicing Agreement. 5. The Trustee has the power and authority to perform its duties pursuant to Sections 8.01 and 8.02 of the Pooling and Servicing Agreement to act as a successor servicer, including the making of advances as described in Sections 8.01 and 8.02 of the Pooling and Servicing Agreement. 6. The Certificates have been duly executed, authenticated and delivered by the Trustee. Appendix B-1 35 APPENDIX C RESERVED Appendix C-1 36 ANNEX A AAMES CAPITAL CORPORATION Mortgage Pass-Through Certificates PRICING AGREEMENT September 15, 1997 Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I hereto c/o Prudential Securities Incorporated One New York Plaza, 15th Floor New York, New York 10038 Ladies and Gentlemen: Aames Capital Corporation (the "Company") proposes, subject to the terms and condition stated herein and the Underwriting Agreement, dated September 15, 1997 (the "Underwriting Agreement"), between the Company and Prudential Securities Incorporated, as underwriter and as Representative (in such capacity, the "Representative" of the several underwriters named in Schedule I hereto (together with the Representative, the "Underwriters"), to issue and sell to the Underwriters the series of mortgage pass-through certificates specified in Schedule II hereto (the "Certificates"). Each of the provisions of the Underwriting Agreement is incorporated herein by reference in its entirety, and shall be deemed to be a part of this Agreement to the same extent as if such provisions had been set forth in full herein; and each of the representations and warranties set forth therein shall be deemed to have been made at and as of the date of this Pricing Agreement, except that each representation and warranty with respect to the Prospectus in Section 1 of the Underwriting Agreement shall be deemed to be a representation or warranty as of the date of the Underwriting Agreement in relation to the Prospectus (as therein defined), and also a representation and warranty as of the date of this Pricing Agreement in relation to the Prospectus as amended or supplemented with respect to the Certificates. Each reference to Representative contained in the Underwriting Agreement shall be deemed to refer to the Representative named herein. Unless otherwise defined herein, terms in the Underwriting Agreement are used herein as therein defined. Annex A-1 37 An amendment to the Registration Statement, or a supplement to the Prospectus, as the case may be, relating to the Certificates in the form heretofore delivered to you is now proposed to be filed or, in the case of a supplement, mailed for filing with the Commission. Subject to the terms and conditions set forth herein and in the Underwriting Agreement incorporated herein by reference, the Company agrees to issue and sell to the Underwriters, and the Underwriters, severally and not jointly, agree to purchase from the Company, at the time and at the purchase price set forth in Schedule II hereto, the aggregate amount of each Class of Certificates set forth opposite the name of such Underwriter set forth in Schedule I hereto plus, in the case of the Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class M-2F and Class B-1F Certificates, interest at the applicable Pass-Through Rate from September 1, 1997 to the Closing Date. Annex A-2 38 If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon acceptance hereof by you, this letter and such acceptance hereof, including the provisions of the Underwriting Agreement incorporated herein by reference, shall constitute a binding agreement between the Underwriters and the Company. Very truly yours, AAMES CAPITAL CORPORATION By: ------------------------------------- Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: PRUDENTIAL SECURITIES INCORPORATED By: ---------------------------------- Name: Title: For itself and as Representative of the several Underwriters named in Schedule I hereto Annex A-3 39 SCHEDULE I
Principal Principal Principal Principal Principal Amount of Amount of Amount of Amount of Amount of Class A-1F Class A-2F Class A-3F Class A-4F Class A-5F Underwriter Certificates Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ ------------ Prudential $28,350,000.00 $9,355,500.00 $11,250,000.00 $4,500,000.00 $5,400,000.00 Securities Incorporated Donaldson, Lufkin $18,900,000.00 $6,237,000.00 $7,500,000.00 $3,000,000.00 $3,600,000.00 & Jenrette Securities Corporation Morgan Stanley & $7,875,000.00 $2,598,750.00 $3,125,000.00 $1,250,000.00 $1,500,000.00 Co. Incorporated NationsBanc $7,875,000.00 $2,598,750.00 $3,125,000.00 $1,250,000.00 $1,500,000.00 Capital Markets, Inc.
Principal Notional Principal Principal Amount of Amount of Amount of Amount of Class A-6F Class A-IO Class M-1F Class M-2F Underwriter Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ Prudential $6,750,000.00 $40,500,000 $4,400,100.00 $4,000,050.00 Securities Incorporated Donaldson, Lufkin $4,500,000.00 $0 $2,933,400.00 $2,666,700.00 & Jenrette Securities Corporation Morgan Stanley & $1,875,000.00 $0 $1,222,250.00 $1,111,125.00 Co. Incorporated NationsBanc $1,875,000.00 $0 $1,222,250.00 $1,111,125.00 Capital Markets, Inc.
40
Principal Principal Principal Principal Principal Amount of Amount of Amount of Amount of Amount of Class B-1F Class A-1A Class M-1A Class M-2A Class B-1A Underwriter Certificates Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ ------------ Prudential $3,600,000.00 $110,141,100.00 $12,482,550.00 $12,482,550.00 $11,749,050.00 Securities Incorporated Donaldson, Lufkin $2,400,000.00 $73,427,400.00 $8,321,700.00 $8,321,700.00 $7,832,700.00 & Jenrette Securities Corporation Morgan Stanley & $1,000,000.00 $30,594,750.00 $3,467,375.00 $3,467,375.00 $3,263,625.00 Co. Incorporated NationsBanc $1,000,000.00 $30,594,750.00 $3,467,375.00 $3,467,375.00 $3,263,625.00 Capital Markets, Inc.
2 41 SCHEDULE II Registration Statement No. 333-21219 Base Prospectus June 18, 1997 Prospectus Supplement dated September 15, 1997 Mortgage Pass-Through Certificates, Series 1997-C Title of Certificates: Class A-1F ---------- Amount of Certificates: $63,000,000 (approximate) Pass-Through Rate: LIBOR + .12% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-2F ---------- Amount of Certificates: $20,790,000 (approximate) Pass-Through Rate: 6.515% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-3F ---------- Amount of Certificates: $25,000,000 (approximate) Pass-Through Rate: 6.595% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997
42 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-4F ---------- Amount of Certificates: $10,000,000 (approximate) Pass-Through Rate: 6.895% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-5F ---------- Amount of Certificates: $12,000,000 (approximate) Pass-Through Rate: 7.255% Purchase Price Percentage: 99.726563% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-6F ---------- Amount of Certificates: $15,000,000 (approximate) Pass-Through Rate: 6.89% Purchase Price Percentage: 99.734375% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof.
2 43 Title of Certificates: Class A-I0 ---------- Amount of Certificates: $40,500,000 Notional Amount (approximate) 1-12 months, $31,500,000 Notional Amount 13-24 months, $18,000,000 Notional Amount 24-30 months, $13,500,000 Notional Amount 31-36 months Pass-Through Rate: 7.00% Purchase Price Percentage: 13.568998% of $40,500,000 Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-1F ---------- Amount of Certificates: $9,778,000 (approximate) Pass-Through Rate: 7.12% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-2F ---------- Amount of Certificates: $8,889,000 (approximate) Pass-Through Rate: 7.315% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof.
3 44 Title of Certificates: Class B-1F ---------- Amount of Certificates: $5,335,000 (approximate) Pass-Through Rate: 7.65% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-1A ---------- Amount of Certificates: $244,758,000 (approximate) Pass-Through Rate: LIBOR + .20% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-1A ---------- Amount of Certificates: $27,739,000 (approximate) Pass-Through Rate: LIBOR + .38% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-2A ---------- Amount of Certificates: $27,739,000 (approximate)
4 45 Pass-Through Rate: LIBOR + .59% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class B-1A ---------- Amount of Certificates: $25,109,000 (approximate) Pass-Through Rate: LIBOR + 1.00% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof.
Representative with respect to the Offered Certificates: Prudential Securities Incorporated Location of Settlement: The offices of Andrews & Kurth L.L.P., 601 South Figueroa Street, Los Angeles, California 5 EX-1.2 3 PRICING AGREEMENT 1 AAMES CAPITAL CORPORATION Mortgage Pass-Through Certificates PRICING AGREEMENT September 15, 1997 Prudential Securities Incorporated, as Representative of the several Underwriters named in Schedule I hereto c/o Prudential Securities Incorporated One New York Plaza, 15th Floor New York, New York 10038 Ladies and Gentlemen: Aames Capital Corporation (the "Company") proposes, subject to the terms and condition stated herein and the Underwriting Agreement, dated September 15, 1997 (the "Underwriting Agreement"), between the Company and Prudential Securities Incorporated, as underwriter and as Representative (in such capacity, the "Representative" of the several underwriters named in Schedule I hereto (together with the Representative, the "Underwriters"), to issue and sell to the Underwriters the series of mortgage pass-through certificates specified in Schedule II hereto (the "Certificates"). Each of the provisions of the Underwriting Agreement is incorporated herein by reference in its entirety, and shall be deemed to be a part of this Agreement to the same extent as if such provisions had been set forth in full herein; and each of the representations and warranties set forth therein shall be deemed to have been made at and as of the date of this Pricing Agreement, except that each representation and warranty with respect to the Prospectus in Section 1 of the Underwriting Agreement shall be deemed to be a representation or warranty as of the date of the Underwriting Agreement in relation to the Prospectus (as therein defined), and also a representation and warranty as of the date of this Pricing Agreement in relation to the Prospectus as amended or supplemented with respect to the Certificates. Each reference to Representative contained in the Underwriting Agreement shall be deemed to refer to the Representative named herein. Unless otherwise defined herein, terms in the Underwriting Agreement are used herein as therein defined. An amendment to the Registration Statement, or a supplement to the Prospectus, as the case may be, relating to the Certificates in the form heretofore delivered to you is now proposed to be filed or, in the case of a supplement, mailed for filing with the Commission. Annex A-1 2 Subject to the terms and conditions set forth herein and in the Underwriting Agreement incorporated herein by reference, the Company agrees to issue and sell to the Underwriters, and the Underwriters, severally and not jointly, agree to purchase from the Company, at the time and at the purchase price set forth in Schedule II hereto, the aggregate amount of each Class of Certificates set forth opposite the name of such Underwriter set forth in Schedule I hereto plus, in the case of the Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class M-2F and Class B-1F Certificates, interest at the applicable Pass-Through Rate from September 1, 1997 to the Closing Date. Annex A-2 3 If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon acceptance hereof by you, this letter and such acceptance hereof, including the provisions of the Underwriting Agreement incorporated herein by reference, shall constitute a binding agreement between the Underwriters and the Company. Very truly yours, AAMES CAPITAL CORPORATION By: /s/ Mark E. Elbaum ----------------------------------- Name: Mark E. Elbaum Title: Senior Vice President-Finance CONFIRMED AND ACCEPTED, as of the date first above written: PRUDENTIAL SECURITIES INCORPORATED By: /s/ Mary Alice Kohs ------------------------------ Name: Mary Alice Kohs Title: Vice President For itself and as Representative of the several Underwriters named in Schedule I hereto Annex A-3 4 SCHEDULE I
Principal Principal Principal Principal Principal Amount of Amount of Amount of Amount of Amount of Class A-1F Class A-2F Class A-3F Class A-4F Class A-5F Underwriter Certificates Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ ------------ Prudential Securities $28,350,000.00 $9,355,500.00 $11,250,000.00 $4,500,000.00 $5,400,000.00 Incorporated Donaldson, Lufkin & $18,900,000.00 $6,237,000.00 $7,500,000.00 $3,000,000.00 $3,600,000.00 Jenrette Securities Corporation Morgan Stanley & Co. $7,875,000.00 $2,598,750.00 $3,125,000.00 $1,250,000.00 $1,500,000.00 Incorporated NationsBanc Capital $7,875,000.00 $2,598,750.00 $3,125,000.00 $1,250,000.00 $1,500,000.00 Markets, Inc.
Principal Notional Principal Principal Amount of Amount of Amount of Amount of Class A-6F Class A-IO Class M-1F Class M-2F Underwriter Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ Prudential Securities $6,750,000.00 $40,500,000 $4,400,100.00 $4,000,050.00 Incorporated Donaldson, Lufkin & $4,500,000.00 $0 $2,933,400.00 $2,666,700.00 Jenrette Securities Corporation Morgan Stanley & Co. $1,875,000.00 $0 $1,222,250.00 $1,111,125.00 Incorporated NationsBanc Capital $1,875,000.00 $0 $1,222,250.00 $1,111,125.00 Markets, Inc.
5
Principal Principal Principal Principal Principal Amount of Amount of Amount of Amount of Amount of Class B-1F Class A-1A Class M-1A Class M-2A Class B-1A Underwriter Certificates Certificates Certificates Certificates Certificates - ----------- ------------ ------------ ------------ ------------ ------------ Prudential Securities $3,600,000.00 $110,141,100.00 $12,482,550.00 $12,482,550.00 $11,749,050.00 Incorporated Donaldson, Lufkin & $2,400,000.00 $73,427,400.00 $8,321,700.00 $8,321,700.00 $7,832,700.00 Jenrette Securities Corporation Morgan Stanley & Co. $1,000,000.00 $30,594,750.00 $3,467,375.00 $3,467,375.00 $3,263,625.00 Incorporated NationsBanc Capital $1,000,000.00 $30,594,750.00 $3,467,375.00 $3,467,375.00 $3,263,625.00 Markets, Inc.
2 6 SCHEDULE II Registration Statement No. 333-21219 Base Prospectus June 18, 1997 Prospectus Supplement dated September 15, 1997 Mortgage Pass-Through Certificates, Series 1997-C Title of Certificates: Class A-1F ---------- Amount of Certificates: $63,000,000 (approximate) Pass-Through Rate: LIBOR + .12% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-2F ---------- Amount of Certificates: $20,790,000 (approximate) Pass-Through Rate: 6.515% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-3F ---------- Amount of Certificates: $25,000,000 (approximate) Pass-Through Rate: 6.595% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997
7 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-4F ---------- Amount of Certificates: $10,000,000 (approximate) Pass-Through Rate: 6.895% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-5F ---------- Amount of Certificates: $12,000,000 (approximate) Pass-Through Rate: 7.255% Purchase Price Percentage: 99.726563% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-6F ---------- Amount of Certificates: $15,000,000 (approximate) Pass-Through Rate: 6.89% Purchase Price Percentage: 99.734375% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof.
2 8 Title of Certificates: Class A-I0 ---------- Amount of Certificates: $40,500,000 Notional Amount (approximate) 1-12 months, $31,500,000 Notional Amount 13-24 months, $18,000,000 Notional Amount 24-30 months, $13,500,000 Notional Amount 31-36 months Pass-Through Rate: 7.00% Purchase Price Percentage: 13.568998% of $40,500,000 Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-1F ---------- Amount of Certificates: $9,778,000 (approximate) Pass-Through Rate: 7.12% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-2F ---------- Amount of Certificates: $8,889,000 (approximate) Pass-Through Rate: 7.315% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof.
3 9 Title of Certificates: Class B-1F ---------- Amount of Certificates: $5,335,000 (approximate) Pass-Through Rate: 7.65% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class A-1A ---------- Amount of Certificates: $244,758,000 (approximate) Pass-Through Rate: LIBOR + .20% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-1A ---------- Amount of Certificates: $27,739,000 (approximate) Pass-Through Rate: LIBOR + .38% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $1,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class M-2A ---------- Amount of Certificates: $27,739,000 (approximate)
4 10 Pass-Through Rate: LIBOR + .59% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof. Title of Certificates: Class B-1A ---------- Amount of Certificates: $25,109,000 (approximate) Pass-Through Rate: LIBOR + 1.00% Purchase Price Percentage: 99.75% Cut-off Date: September 1, 1997 Closing: September 19, 1997 Denominations: $25,000.00 and integral multiples of $1.00 in excess thereof.
Representative with respect to the Offered Certificates: Prudential Securities Incorporated Location of Settlement: The offices of Andrews & Kurth L.L.P., 601 South Figueroa Street, Los Angeles, California 5 EX-4.1 4 POOLING & SERVICING AGREEMENT 1 EXECUTION COPY ================================================================================ AAMES CAPITAL CORPORATION as Seller and Servicer and BANKERS TRUST COMPANY OF CALIFORNIA, N.A. as Trustee POOLING AND SERVICING AGREEMENT Dated as of September 1, 1997 Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C ================================================================================ 2 TABLE OF CONTENTS ARTICLE ONE DEFINITIONS Section 1.01. Definitions........................................................................................1 Section 1.02. Interest Calculations.............................................................................39 ARTICLE TWO CONVEYANCE OF THE TRUST; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. Conveyance of the Trust...........................................................................39 Section 2.02. Conveyance of the Subsequent Mortgage Loans; Fixed Price Contract.................................42 Section 2.03. Acceptance by the Trustee; Repurchase or Substitution of Mortgage Loans...........................45 Section 2.04. Representations and Warranties Regarding the Servicer and the Seller..............................47 Section 2.05. Representations and Warranties of the Seller Regarding the Mortgage Loans.........................49 Section 2.06. Execution and Authentication of Certificates......................................................59 Section 2.07. [Reserved]........................................................................................59 Section 2.08. Indemnification of the Trust......................................................................59 ARTICLE THREE ADMINISTRATION AND SERVICING OF MORTGAGE LOANS; CERTIFICATE ACCOUNT Section 3.01. The Servicer and the Sub-Servicers................................................................59 Section 3.02. Collection of Certain Mortgage Loan Payments; Collection Account and Certificate Account............................................................................61 Section 3.03. Additional Servicing Responsibilities for the Adjustable Rate Mortgage Loans.................................................................64 Section 3.04. Hazard Insurance Policies.........................................................................64 Section 3.05. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements....................................................................65 Section 3.06. Realization upon Liquidated Mortgage Loans........................................................65 Section 3.07. Trustee to Cooperate; Release of Mortgage Files...................................................67 Section 3.08. Servicing Compensation; Payment of Certain Expenses by the Servicer...............................67 Section 3.09. Annual Statement as to Compliance.................................................................68 Section 3.10. Annual Independent Public Accountants' Servicing Report...........................................68 Section 3.11. Access to Certain Documentation and Information Regarding the Mortgage Loans...................................................................68 Section 3.12. Maintenance of Fidelity Bond and Errors and Omission Policy.......................................69 Section 3.13. Notices to the Rating Agencies and the Trustee....................................................69 Section 3.14. Reports of Foreclosures and Abandonment of Mortgaged Properties...................................69 Section 3.15. Sub-Servicers and Sub-Servicing Agreements........................................................69
ii 3 Section 3.16. [Reserved]........................................................................................70 Section 3.17. [Reserved]........................................................................................71 Section 3.18. [Reserved]........................................................................................72 Section 3.19. [Reserved]........................................................................................72 Section 3.20. Trust and Accounts Held for Benefit of the Certificateholders..................................72 ARTICLE FOUR REMITTANCE REPORT Section 4.01. Servicer Remittance Report........................................................................72 Section 4.02. Trustee Distribution Date Statement............................................................72 ARTICLE FIVE PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS Section 5.01. Distributions.....................................................................................74 Section 5.02. Monthly Advances; Servicing Advances..............................................................77 Section 5.03. Statements to Certificateholders..................................................................78 Section 5.04. Applied Realized Loss Amount......................................................................80 ARTICLE SIX THE CERTIFICATES Section 6.01. The Certificates..................................................................................80 Section 6.02. Registration of Transfer and Exchange of Certificates.............................................81 Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates.................................................86 Section 6.04. Persons Deemed Owners.............................................................................87 Section 6.05. Actions of Certificateholders.....................................................................87 ARTICLE SEVEN THE SERVICER AND THE SELLER Section 7.01. Liability of the Servicer.........................................................................87 Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer...............................................................87 Section 7.03. Limitation on Liability of the Servicer and Others................................................88 Section 7.04. Servicer Not to Resign............................................................................88 Section 7.05. Merger or Consolidation of the Seller.............................................................88 Section 7.06. [Reserved].........................................................................................89 ARTICLE EIGHT DEFAULT Section 8.01. Events of Default.................................................................................89
iii 4 Section 8.02. Trustee to Act; Appointment of Successor..........................................................90 Section 8.03. Notifications to Certificateholders...............................................................91 Section 8.04. Assumption or Termination of Sub-Servicing Agreements by the Trustee or any Successor Servicer..............................................................91 ARTICLE NINE THE TRUSTEE Section 9.01. Duties of the Trustee.............................................................................92 Section 9.02. Certain Matters Affecting the Trustee.............................................................93 Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans.............................................94 Section 9.04. Trustee May Own Certificates......................................................................94 Section 9.05. Payment of the Trustee's Fees and Expenses........................................................95 Section 9.06. Eligibility Requirements for the Trustee..........................................................95 Section 9.07. Resignation or Removal of the Trustee.............................................................96 Section 9.08. Successor Trustee.................................................................................96 Section 9.09. Merger or Consolidation of the Trustee............................................................97 Section 9.10. Appointment of Co-Trustee or Separate Trustee.....................................................97 Section 9.11. Compliance with REMIC Provisions..................................................................98 Section 9.12. Trustee May Enforce Claims Without Possession of Certificates.....................................99 Section 9.13. Exercise of Trustee Powers by Certificateholders..................................................99 Section 9.14. Tax Returns.......................................................................................99 Section 9.15. Taxpayer Identification Number...................................................................100 Section 9.16 Miscellaneous REMIC Provisions................................................................100 ARTICLE TEN TERMINATION Section 10.01. Termination Upon Purchase or Liquidation of Mortgage Loans......................................106 Section 10.02. Additional Termination Requirements.............................................................108 ARTICLE ELEVEN MISCELLANEOUS PROVISIONS Section 11.01. Amendment.......................................................................................108 Section 11.02. Recordation of Agreement........................................................................110 Section 11.03. Limitation on Rights of Certificateholders......................................................110 Section 11.04. Governing Law...................................................................................111 Section 11.05. Notices.........................................................................................111 Section 11.06. Severability of Provisions......................................................................111 Section 11.07. Assignment......................................................................................111 Section 11.08. Certificates Nonassessable and Fully Paid.......................................................112
iv 5 SCHEDULES AND EXHIBITS Schedule I List of Sub-Servicers Exhibit A Forms of Certificates Exhibit B Mortgage Loan Schedule Exhibit C Form of Annual Statement as to Compliance Exhibit D Form of Transfer Affidavit Exhibit E Form of Payoff Notice Exhibit F Form of Liquidation Report Exhibit G Form of Officer's Certificate as to Charge-offs Exhibit H Form of Transferor Affidavit v 6 THIS POOLING AND SERVICING AGREEMENT (this "Agreement"), dated as of September 1, 1997, between Aames Capital Corporation, as seller (in such capacity, the "Seller") and as servicer (in such capacity, together with permitted successors hereunder, the "Servicer"), and Bankers Trust Company of California, N.A., as trustee (the "Trustee"), W I T N E S S E T H T H A T: In consideration of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE ONE DEFINITIONS Section 1.01. Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accrued Certificate Interest: With respect to any Class and Distribution Date, means the amount of interest due for any Class of Offered Certificates in respect of any Interest Period at the applicable Pass-Through Rate, less the related pro rata share of Interest Shortfalls plus, in the case of the Adjustable Rate Group Certificates, any related Capped Interest Reallocation Amount. All calculations of interest on the Fixed Rate Group Certificates will be made on the basis of a 360-day year assumed to consist of twelve 30-day months, and all calculations of interest on the Adjustable Rate Group Certificates will be made on the basis of the actual number days elapsed in the related Interest Period and a year of 360 days. Adjustable Rate Group: The Mortgage Loan Group comprised of all Mortgage Loans identified in the Mortgage Loan Schedule as having been assigned to the Adjustable Rate Group, including any Qualified Replacement Mortgage Loans delivered in replacement thereof. Adjustable Rate Group Available Funds Cap: With respect to any Distribution Date, the per annum rate expressed as the percentage obtained by dividing (x) the amount of interest that accrued on the Mortgage Loans in the Adjustable Rate Group in respect of the related Collection Period at the weighted average of the related Mortgage Loan Rates applicable to Monthly Mortgage Payments due on such Mortgage Loans during such Collection Period, reduced by the Monthly Servicing Fee for the related Collection Period, by (y) the product of (i) the Adjustable Rate Group Certificate Principal Balance as of the first day of the related Interest Period and (ii) the actual number of days elapsed during such Interest Period divided by 360. Adjustable Rate Group Balance: With respect to any Distribution Date the sum of the aggregate of the Principal Balances of the Mortgage Loans in the Adjustable Rate Group as of the end of the related Collection Period. Adjustable Rate Group Principal Distribution Amount: With respect to any Distribution Date, generally means the sum, without duplication, of (i) the principal actually collected by the Servicer 7 during the related Collection Period with respect to Mortgage Loans in the Adjustable Rate Group as described in the definition of Principal Distribution Amount and (ii) under certain circumstances described in Section 5.01(c) any related Extra Principal Distribution Amount. Adjustable Rate Mortgage Loan: Any Mortgage Loan with a Mortgage Loan Rate that is adjustable at regular periodic intervals, based on the Index plus the related Gross Margin subject to any Minimum Rate, Maximum Rate and any periodic limitations on adjustment from time to time, all as set forth in the Mortgage Loan Schedule. All Adjustable Rate Mortgage Loans will be included in the Adjustable Rate Group. Adjustment Date: With respect to any Adjustable Rate Mortgage Loan, the date on which a change to the Mortgage Loan Rate on a Mortgage Loan becomes effective. Affiliate: With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings corresponding to the foregoing. Aggregate Certificate Principal Balance: With respect to any Distribution Date means the sum of the Certificate Principal Balances of all Classes of the Offered Certificates. The Aggregate Certificate Principal Balance for a particular Mortgage Loan Group is the sum of the Certificate Principal Balances of all Classes of the Offered Certificates relating to such Group. Agreement: This Pooling and Servicing Agreement and all amendments hereof and supplements hereto. Annual Statement of Compliance: The annual statement to be prepared and delivered by the Servicer in accordance with Section 3.09. Applied Realized Loss Amount: With respect to either Mortgage Loan Group and any Distribution Date, means the excess of the related Realized Losses over the amount, if any by which the Overcollateralization Amount exceeds zero after taking into account the application of the Fixed Rate Group Principal Distribution Amount or Adjustable Rate Group Principal Distribution Amount, as appropriate, on such Distribution Date and the application of any Monthly Excess Cashflow Amount available from the other Mortgage Loan Group to cover such Realized Losses as set forth in Section 5.01(c). Appraised Value: The appraised value of any Mortgaged Property based upon the appraisal made at the time of origination of the related Mortgage Loan or, in the case of a Mortgage Loan that is a purchase money mortgage loan, the sales price of the related Mortgaged Property if such sales price is less than such appraised value. 2 8 Available Capped Interest: With respect to any Distribution Date, means the positive difference, if any, between (x) the sum of the amount of interest accrued at the Adjustable Rate Group Available Funds Cap on each Class of Adjustable Rate Group Certificates and (y) the sum of the amount of interest accrued at the Pass-Through Rates on each Class of Adjustable Rate Group Certificates. Book-Entry Certificate: Any Certificate registered in the name of the Depository or its nominee, ownership of which is reflected on the books of the Depository or on the books of a person maintaining an account with such Depository (directly or as an indirect participant in accordance with the rules of such Depository). As of the Closing Date, only the Offered Certificates constitute Book-Entry Certificates. Book-Entry Nominee: As defined in Section 6.02(c). Business Day: Any day other than (a) a Saturday or a Sunday or (b) a day on which banking institutions in the State of California or the State of New York are required or authorized by law, executive order or governmental decree to be closed. Capped Interest Reallocation Amount: With respect to any Distribution Date and any Class of Adjustable Rate Group Certificates whose Pass-Through Rate for the related Interest Period is the Adjustable Rate Group Available Funds Cap, means the lesser of (x) the Capped Interest Shortfall Amount for such Class and such period, and (y) the remaining Available Capped Interest allocated pro-rata among the Classes of Adjustable Rate Group Certificates whose Pass-Through Rate for the related Interest Period is the Adjustable Rate Group Available Funds Cap. To the extent there is any Available Capped Interest remaining after applications pursuant to this definition, such remaining Available Capped Interest shall be reallocated pursuant to this definition until the Capped Interest Reallocation Amount for each Class of Adjustable Rate Group Certificates equals the Capped Interest Shortfall Amount for each such Class. Capped Interest Shortfall Amount: With respect to any Distribution Date and any Class of Adjustable Rate Group Certificates whose Pass-Through Rate for the related Interest Period is the Adjustable Rate Group Available Funds Cap, means the amount of interest that would have accrued during the related Interest Period on such Class if the applicable Pass-Through Rate had instead been the related Formula Pass-Through Rate, minus the amount of Accrued Certificate Interest therefor (excluding any Capped Interest Reallocation Amount) on such Class Distribution Date, otherwise, zero. Certificate: Any Class A, Subordinate or Retained Certificate. Certificate Account: The segregated account, which shall be an Eligible Account, established and maintained pursuant to Section 3.02(e) and entitled "Bankers Trust Company of California, N.A., as Trustee for Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C, Certificate Account". 3 9 Certificate Owner: With respect to any Book-Entry Certificate, the Person who is the beneficial owner thereof. Certificate Principal Balance: With respect to the Class A-1F Certificates, the Class A-1F Certificate Principal Balance; with respect to the Class A-2F Certificates, the Class A-2F Certificate Principal Balance; with respect to the Class A-3F Certificates, the Class A-3F Certificate Principal Balance; with respect to the Class A-4F Certificates, the Class A-4F Certificate Principal Balance; with respect to the Class A-5F Certificates, the Class A-5F Certificate Principal Balance; with respect to the Class A-6F Certificates, the Class A-6F Certificate Principal Balance; with respect to the Class M-1F Certificates, the Class M-1F Certificate Principal Balance; with respect to the Class M-2F Certificates, the Class M-2F Certificate Principal Balance; with respect to the Class B-1F Certificates, the Class B-1F Certificate Principal Balance; with respect to the Class B-2F Certificates, the Class B-2F Certificate Principal Balance; with respect to the Class A-1A Certificates, the Class A-1A Certificate Principal Balance; with respect to the Class M-1A Certificates, the Class M-1A Certificate Principal Balance; with respect to the Class M-2A Certificates, the Class M-2A Certificate Principal Balance; and with respect to the Class B-1A Certificates, the Class B-1A Certificate Principal Balance. The Class A-IO Certificates do not have Certificate Principal Balances but bear interest based on the Class A-IO Notional Amount. The Class C Certificates and the Class R Certificates do not have a Certificate Principal Balance. With respect to any other designation (e.g. the Fixed Rate Group Certificate Principal Balance), the sum of the Certificate Principal Balances of each Class contemplated by such designation. Certificate Register: The register maintained pursuant to Section 6.02. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, except that, solely for the purpose of taking any action under Article Eight or giving any consent pursuant to this Agreement, any Certificate registered in the name of the Seller or the Servicer or any Person actually known to a Responsible Officer of the Trustee to be an Affiliate of the Seller or the Servicer shall be deemed not to be outstanding and the Percentage Interest evidenced thereby shall not be taken into account in determining whether Holders of the requisite Percentage Interests necessary to take any such action or effect any such consent have acted or consented unless the Seller, the Servicer or any such Person is an owner of record of all of the Certificates of any Class. Class: All of the Class A-1F Certificates, Class A-2F Certificates, Class A-3F Certificates, Class A-4F Certificates, Class A-5F Certificates, Class A-6F Certificates, Class A-IO Certificates, M-1F Certificates, Class M-2F Certificates, Class B-1F Certificates, Class B-2F Certificates, Class A-1A Certificates, the Class M-1A Certificates, Class M-2A Certificates, Class B-1A Certificates, Class C Certificates or the Class R Certificate, as the case may be, taken as a whole. Class A Certificates: All of the Class A-1F Certificates, Class A-2F Certificates, Class A-3F Certificates, Class A-4F Certificates, Class A-5F Certificates, Class A-6F Certificates, Class A-IO Certificates and Class A-1A Certificates, taken as a whole. 4 10 Class A Certificate Principal Balance: With respect to any Distribution Date and any Class of the Class A Certificates means the Initial Certificate Principal Balance of such Class as reduced by the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the related Class A Certificateholders on all prior Distribution Dates. Class A Principal Distribution Amount: With respect to each Mortgage Loan Group and Distribution Date means on or after the related Stepdown Date, the excess of (x) the related Class A Certificate Principal Balance immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the lesser of (1) the related Stepped Up Enhancement Percentage and (2) 63.00% in the case of the Fixed Rate Group, and 50.00% minus the applicable Targeted Stepdown Percentage in the case of the Adjustable Rate Group, and (ii) the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date, and (B) the excess of such aggregate Mortgage Loan balance over $888,965 in the case of the Fixed Rate Group and $1,631,725 in the case of the Adjustable Rate Group. Class A-1A Certificate: Any one of the Class A-1A Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-1A Certificate Principal Balance: As to any Distribution Date, the Class A-1A Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-1A Certificates on previous Distribution Dates. Class A-1A Pass-Through Rate: With respect to the Interest Period relating to the October 1997 Distribution Date, 5.85625% per annum; with respect to each Interest Period thereafter that ends on or prior to the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.20% and (b) the Adjustable Rate Group Available Funds Cap; and with respect to each Interest Period thereafter that ends after the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.40% and (b) the Adjustable Rate Group Available Funds Cap. Class A-1F Certificate: Any one of the Class A-1F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-1F Certificate Principal Balance: As to any Distribution Date, the Class A-1F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-1F Certificates on previous Distribution Dates. Class A-1F Pass-Through Rate: With respect to the Interest Period relating to the October 1997 Distribution Date, 5.77625% per annum. With respect to each subsequent Interest Period, the per annum rate equal to the lesser of (x) LIBOR plus 0.12% per annum, (y) the product of (a) the weighted average of the Mortgage Loans Rates used to determine interest due on the Mortgage Loans in the Fixed Rate Group during the related Collection Period, reduced by the Servicing Fee 5 11 Rate and (b) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related Interest Period and (z) the product of the Fixed Rate Net WAC and a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related Interest Period. Class A-2F Certificate: Any one of the Class A-2F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-2F Certificate Principal Balance: As to any Distribution Date, the Class A-2F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-2F Certificates on previous Distribution Dates. Class A-2F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 6.515% per annum and (ii) the Fixed Rate Net WAC. Class A-3F Certificate: Any one of the Class A-3F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-3F Certificate Principal Balance: As to any Distribution Date, the Class A-3F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-3F Certificates on previous Distribution Dates. Class A-3F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 6.595% per annum and (ii) the Fixed Rate Net WAC. Class A-4F Certificate: Any one of the Class A-4F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-4F Certificate Principal Balance: As to any Distribution Date, the Class A-4F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-4F Certificates on previous Distribution Dates. Class A-4F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 6.895% per annum and (ii) the Fixed Rate Net WAC. Class A-5F Certificate: Any one of the Class A-5F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. 6 12 Class A-5F Certificate Principal Balance: As to any Distribution Date, the Class A-5F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-5F Certificates on previous Distribution Dates. Class A-5F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 7.255% per annum and (ii) the Fixed Rate Net WAC.. Class A-6F Certificate: Any one of the Class A-6F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-6F Certificate Principal Balance: As to any Distribution Date, the Class A-6F Initial Certificate Principal Balance less the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to Holders of Class A-6F Certificates on previous Distribution Dates. Class A-6F Lockout Distribution Amount: With respect to any Distribution Date means the product of (i) the applicable Class A-6F Lockout Percentage for such Distribution Date and (ii) the Class A-6F Lockout Pro Rata Distribution Amount for such Distribution Date, not to exceed the related Class A Principal Distribution Amount. Class A-6F Lockout Percentage: With respect to each Distribution Date occurring during the indicated periods means the indicated percentage:
Class A-6F Period Lockout Percentage ------ ------------------ October 1997 - September 2000 0% October 2000 - September 2002 45% October 2002 - September 2003 80% October 2003 - September 2004 100% October 2004 and thereafter 300%
Class A-6F Lockout Pro Rata Distribution Amount: With respect to any Distribution Date means an amount equal to the product of (x) a fraction, the numerator of which is the Certificate Principal Balance of the Class A-6F Certificates immediately prior to such Distribution Date and the denominator of which is the Aggregate Certificate Principal Balance of the Fixed Rate Group Class A Certificates immediately prior to such Distribution Date, and (y) the related Class A Principal Distribution Amount for such Distribution Date. Class A-6F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 6.890% per annum and (ii) the Fixed Rate Net WAC. 7 13 Class A-IO Certificate: Any one of the Class A-IO Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class A-IO Notional Amount or Notional Amount : The notional principal amount equal to the outstanding Certificate Principal Balance of the Class A-6F Certificates immediately prior to the related Distribution Date. Class A-IO Pass-Through Rate: With respect to any Interest Period ending prior to September 1, 2000, 7.00% per annum, and with respect to any subsequent Interest Period, 0.00% per annum. Class B Applied Realized Loss Amount: With respect to any Distribution Date and any Class of the Class B Certificates means, the lesser of (x) the related Class B Certificate Principal Balance (after taking into account the distribution of the sum of the related Principal Distribution Amount and Extra Principal Distribution Amount on such Distribution Date, but prior to the application of the related Class B Applied Realized Loss Amount, if any, on such Distribution Date and in the case of the Class B-1F Certificates, after taking into account the outstanding Class B-2F Certificate Principal Balance and applying Realized Losses thereto) and (y) the related Applied Realized Loss Amount as of such Distribution Date. Class B Certificates: Collectively, the Class B-1F, Class B-2F and Class B-1A Certificates. Class B Certificate Principal Balance: With respect to any Distribution Date as to any Class of the Class B Certificates means the Initial Class B Certificate Principal Balance of such Class as reduced by the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the related Class B Certificateholders on all prior Distribution Dates and (y) the aggregate cumulative amount of related Class B Applied Realized Loss Amounts on all prior Distribution Dates, as indicated by the context. Class B-1 Principal Distribution Amount: With respect to each Mortgage Loan Group and any Distribution Date on or after the related Stepdown Date, means the excess of (x) the sum of (i) the Aggregate Certificate Principal Balance of the related Class A Certificates (after application of the related Class A Principal Distribution Amount on such Distribution Date), (ii) the related Class M-1 Certificate Principal Balance (after application of the related Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the related Class M-2 Certificate Principal Balance (after application of the related Class M-2 Principal Distribution Amount on such Distribution Date) and (iv) the related Class B Certificate Principal Balance of the Class B-1F or Class B-1A Certificates, as appropriate, immediately prior to such Distribution Date, over (y) the lesser of (i) 93.00% in the case of the Fixed Rate Group, and 100% minus the applicable Targeted Stepdown Percentage in the case of the Adjustable Rate Group, of the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date and (ii) the excess of such aggregate Mortgage Loan balance over $888,965 in the case of the Fixed Rate Group and $1,631,725 in the case of the Adjustable Rate Group. 8 14 Class B-2 Principal Distribution Amount: With respect to each Mortgage Loan Group and any Distribution Date on or after the related Stepdown Date, means the excess of (x) the sum of (i) the Aggregate Certificate Principal Balances of the Fixed Rate Group Class A Certificates (after application of the related Class A Principal Distribution Amount on such Distribution Date), (ii) the related Class M-1 Certificate Principal Balance (after application of the related Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the related Class M-2 Certificate Principal Balance (after application of the related Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Class B-1F Certificate Principal Balance (after application of the related Class B-1 Principal Distribution Amount on such Distribution Date) and (v) the Class B-2F Certificate Principal Balance immediately prior to such Distribution Date, over (y) the lesser of (i) 99.00% of the aggregate of the outstanding Principal Balances of the Mortgage Loans in the Fixed Rate Group as of the related Determination Date and (ii) the excess of the aggregate of the outstanding Principal Balances of the Mortgage Loans in the Fixed Rate Group as of the related Determination Date over $888,965. Class B Realized Loss Amortization Amount With respect to any Class of the Class B Certificates and as of any Distribution Date means, the lesser of (x) the related Class B Unpaid Realized Loss Amount as of such Distribution Date and (y) the related Monthly Excess Cashflow Amount remaining after distribution of the related Class A Interest Carry Forward Amount, the related Extra Principal Distribution Amount, the related Class M-1F or Class M-1A Realized Loss Amortization Amount, the related Class M-2F or Class M-2A Realized Loss Amortization Amount, the related Class M-1F or Class M-1A Interest Carry Forward Amount, the related Class M-2F or Class M-2A Interest Carry Forward Amount and the related Class B Interest Carry Forward Amount, in each case for such Distribution Date (and in the case of the Class B-2F Certificates, after distribution of Class B Interest Carry Forward Amounts and Class B Realized Loss Amortization Amounts for the Class B-1F Certificates). Class B-1A Certificate: Any one of the Class B-1A Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class B-1A Pass Though Rate: With respect to the Interest Period relating to the October 1997 Distribution Date, 6.65625% per annum; with respect to each Interest Period thereafter that ends on or prior to the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 1.00% and (b) the Adjustable Rate Group Available Funds Cap; and with respect to each Interest Period thereafter that ends after the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 1.50% and (b) the Adjustable Rate Group Available Funds Cap. Class B-1F Certificates: Any one of the Class B-1F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class B-1F Pass Though Rate: With respect to any Interest Period, the lesser of (i) 7.650% per annum and (ii) the Fixed Rate Net WAC. 9 15 Class B-2F Certificates: Any one of the Class B-2F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class B-2F Pass Though Rate: With respect to any Interest Period, the lesser of (i) 8.250% per annum and (ii) the Fixed Rate Net WAC. Class C Certificates: Any one of the Class C Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class C Carryforward Amount: With respect to any Distribution Date, means the amount by which the aggregate of the amount by which the Class C Distribution Amount for each prior Distribution Date exceeded the amount actually distributed in respect of the Class C Distribution Amount on each such date, reduced by the aggregate of the amounts distributed in respect of the Class C Carryforward Amount on each such prior Distribution Dates, and reduced by the aggregate of the amounts of Realized Losses that have resulted in the reduction of the Overcollateralization Amount on each such prior Distribution Date. Class C Distribution Amount: With respect to any Distribution Date, means the interest allocated to the Class C Certificates as separate components in accordance with Note 5 of Section 9.16 with respect to such Distribution Date. Class M Certificates: Collectively, the Class M-1F, Class M-2F, Class M-1A and Class M-2A Certificates. Class M-1 Certificates: Collectively, the Class M-1F and Class M-1A Certificates. Class M-1 Certificate Principal Balance: Means either the Class M-1F Certificate Principal Balance or the Class M-1A Certificate Principal Balance, as indicated by the context. Class M-1 Principal Distribution Amount: With respect to each Mortgage Loan Group and any Distribution Date on or after the related Stepdown Date, the excess of (x) the sum of (i) the Aggregate Certificate Principal Balance of the related Class A Certificates (after application of the related Class A Principal Distribution Amount on such Distribution Date and (ii) the related Class M-1 Certificate Principal Balance immediately prior to such Distribution Date over (y) the lesser of (i) 74.00% in the case of the Fixed Rate Group and 67.00% minus the applicable Targeted Stepdown Percentage in the case of the Adjustable Rate Group, of the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date and (ii) the excess of such aggregate Mortgage Loan balance over $888,965 in the case of the Fixed Rate Group and $1,631,725 in the case of the Adjustable Rate Group. Class M-1 Realized Loss Amortization Amount: With respect to any Distribution Date means either the Class M-1A Realized Loss Amortization Amount or the Class M-1F Realized Loss Amortization amount, as appropriate. 10 16 Class M-1A Applied Realized Loss Amount: With respect to any Distribution Date, means the lesser of (x) the related Class M-1A Certificate Principal Balance (after taking into account the distribution of the related Principal Distribution Amount on such Distribution Date, but prior to the application of the related Class M-1A Applied Realized Loss Amount, if any, on such Distribution Date), and (y) the excess of (i) the related Applied Realized Loss Amount over (ii) the sum of the related Class M-2A Applied Realized Loss Amount and the related Class B-1A Applied Realized Loss Amount, in each case as of such Distribution Date. Class M-1A Certificates: Any one of the Class M-1A Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class M-1A Certificate Principal Balance: With respect to any date of determination, means the Initial Class M-1A Certificate Principal Balance as reduced by the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the Class M-1A Certificateholders on all prior Distribution Dates and (y) the aggregate cumulative amount of related Class M-1A Applied Realized Loss Amounts on all prior Distribution Dates. Class M-1A Pass Through Rate: With respect to the Interest Period relating to the October 1997 Distribution Date, 6.03625% per annum; with respect to each Interest Period thereafter that ends on or prior to the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.38% and (b) the Adjustable Rate Group Available Funds Cap; and with respect to each Interest Period thereafter that ends after the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.57% and (b) the Adjustable Rate Group Available Funds Cap. Class M-1A Realized Loss Amortization Amount: With respect to any Distribution Date means the lesser of (x) the related Class M-1A Unpaid Realized Loss Amount and (y) the related Monthly Excess Cashflow Amount remaining after distribution of the related Class A Interest Carry Forward Amount, the related Extra Principal Distribution Amount and the related Class M-1A Interest Carry Forward Amount. Class M-1F Applied Realized Loss Amount: With respect to any Distribution Date, means the lesser of (x) the related Class M-1F Certificate Principal Balance (after taking into account the distribution of the related Principal Distribution Amount on such Distribution Date, but prior to the application of the related Class M-1F Applied Realized Loss Amount, if any, on such Distribution Date), and (y) the excess of (i) the related Applied Realized Loss Amount over (ii) the sum of the related Class M-2F Applied Realized Loss Amount, the related Applied Realized Loss Amounts being allocated to the Class B-2F and Class B-1F Certificates, and the Related Class B-2F Applied Realized Loss Amount in each case as of such Distribution Date. Class M-1F Certificates: Any one of the Class M-1F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. 11 17 Class M-1F Certificate Principal Balance: With respect to any date of determination, means the Initial Class M-1F Certificate Principal Balance as reduced by the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the Class M-1F Certificateholders on all prior Distribution Dates and (y) the aggregate cumulative amount of related Class M-1F Applied Realized Loss Amounts on all prior Distribution Dates. Class M-1F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 7.120% per annum and (ii) the Fixed Rate Net WAC. Class M-1F Realized Loss Amortization Amount: With respect to any Distribution Date means the lesser of (x) the related Class M-1F Unpaid Realized Loss Amount and (y) the related Monthly Excess Cashflow Amount remaining after distribution of the related Class A Interest Carry Forward Amount, the related Extra Principal Distribution Amount and the related Class M-1F Interest Carry Forward Amount. Class M-2 Certificates: Collectively, the Class M-2F and Class M-2A Certificates. Class M-2 Certificate Principal Balance: Means either the Class M-2F Certificate Principal Balance or the Class M-2A Certificate Principal Balance, as indicated by the context. Class M-2 Principal Distribution Amount: With respect to each Mortgage Loan Group and any Distribution Date on or after the related Stepdown Date means the excess of (x) the sum of (i) the Aggregate Certificate Principal Balance of the related Class A Certificates (after application of the related Class A Principal Distribution Amount on such Distribution Date), (ii) the related Class M-1 Certificate Principal Balance (after application of the related Class M-1 Principal Distribution Amount on such Distribution Date) and (iii) the related Class M-2 Certificate Principal Balance immediately prior to such Distribution Date over (y) the lesser of (i) 84.00% in the case of the Fixed Rate Group, and 84.00% minus the applicable Targeted Stepdown Percentage in the case of the Adjustable Rate Group, of the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date and (ii) the excess of such aggregate Mortgage Loan balance over $888,965 in the case of the Fixed Rate Group and $1,631,725 in the case of the Adjustable Rate Group. Class M-2 Realized Loss Amortization Amount: With respect to any Distribution Date means either the Class M-2F Realized Loss Amortization Amount or the Class M-2A Realized Loss Amortization Amount, as appropriate. Class M-2A Applied Realized Loss Amount: With respect to any Distribution Date means the lesser of (x) the related Class M-2A Certificate Principal Balance (after taking into account the distribution of the related Principal Distribution Amount, but prior to the application of the related Class M-2A Applied Realized Loss Amount, if any on such Distribution Date) and (y) the excess of (i) the related Applied Realized Loss Amount over (ii) the Class B-1A Applied Realized Loss Amount as of such Distribution Date. 12 18 Class M-2A Certificates: Any one of the Class M-2A Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class M-2A Certificate Principal Balance: With respect to any date of determination means, the Initial Class M-2A Certificate Principal Balance as reduced by the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the Class M-2A Certificateholders on all prior Distribution Dates and (y) the aggregate, cumulative amount of related Class M-2A Applied Realized Loss Amounts on all prior Distribution Dates. Class M-2A Pass-Through Rate: With respect to the Interest Period relating to the October 1997 Distribution Date, 6.24625% per annum; with respect to each Interest Period thereafter that ends on or prior to the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.59% and (b) the Adjustable Rate Group Available Funds Cap; and with respect to each Interest Period thereafter that ends after the Clean-Up Call Date, a per annum rate equal to the lesser of (a) LIBOR plus 0.885% and (b) the Adjustable Rate Group Available Funds Cap. Class M-2A Realized Loss Amortization Amount: With respect to any Distribution Date, means the lesser of (x) the related Class M-2A Unpaid Realized Loss Amount and (y) the related Monthly Excess Cashflow Amount remaining after distribution of the related Class A Interest Carry Forward Amount, the related Extra Principal Distribution Amount, the related Class M-1A Realized Loss Amortization Amount, the related Class M-1A Interest Carry Forward Amount and the related Class M-2A Interest Carry Forward Amount. Class M-2F Applied Realized Loss Amount: With respect to any Distribution Date means the lesser of (x) the related Class M-2F Certificate Principal Balance (after taking into account the distribution of the related Principal Distribution Amount, but prior to the application of the related Class M-2F Applied Realized Loss Amount, if any, on such Distribution Date) and (y) the excess of (i) the related Applied Realized Loss Amount over (ii) the Realized Loss Amounts being allocated to the Class B-2F and Class B-1F Certificates, in each case as of such Distribution Date. Class M-2F Certificates: Any one of the Class M-2F Certificates executed by the Trustee on behalf of the Trust, not in its individual capacity, but solely as Trustee, authenticated by the Trustee and in substantially the form set forth with respect thereto in Exhibit A. Class M-2F Certificate Principal Balance: With respect to any date of determination means, the Initial Class M-2F Certificate Principal Balance as reduced by the sum of (x) the sum of all Principal Distribution Amounts and Extra Principal Distribution Amounts actually distributed to the Class M-2F Certificateholders on all prior Distribution Dates and (y) the aggregate, cumulative amount of related Class M-2F Applied Realized Loss Amounts on all prior Distribution Dates. Class M-2F Pass-Through Rate: With respect to any Interest Period, the lesser of (i) 7.315% per annum and the Fixed Rate Net WAC. 13 19 Class M-2F Realized Loss Amortization Amount: With respect to any Distribution Date, means the lesser of (x) the related Class M-2F Unpaid Realized Loss Amount and (y) the related Monthly Excess Cashflow Amount remaining after distribution of the related Class A Interest Carry Forward, the related Extra Principal Distribution Amount, the related Class M-1F Realized Loss Amortization Amount, the related Class M-1F Interest Carry Forward Amount and the related Class M-2F Interest Carry Forward Amount. Class R Certificate: Any one of the Class R-IA, Class R-IF, Class R-II or Class R-III Certificates. Class R-IA Certificates: That certificate representing certain residual rights to distribution from the REMIC IA in substantially the form set forth as Exhibit A hereto. Class R-IF Certificates: That certificate representing certain residual rights to distribution from the REMIC IF in substantially the form set forth as Exhibit A hereto. Class R-II Certificates: That certificate representing certain residual rights to distribution from the REMIC II in substantially the form set forth as Exhibit A hereto. Class R-III Certificates: That certificate representing certain residual rights to distribution from the REMIC III in substantially the form set forth as Exhibit A hereto. Clean-up Call Date: With respect to each Mortgage Loan Group, the first Distribution Date on which the aggregate of the Principal Balances of the related Mortgage Loans is less than 10% of the aggregate of such Principal Balances as of the close of business on the Closing Date. Closing Date: September 19, 1997. Closing Date Deposit: The aggregate amount deposited by the Seller in the Collection Account on or prior to the Closing Date pursuant to Section 2.01, which amount is equal to the sum of 30 days of interest on the principal balance of each Mortgage Loan that is transferred to the Trust as of the Cut-off Date and does not have a Monthly Mortgage Payment due in the Collection Period relating to the October 1997 Distribution Date, at a per annum rate equal to the Mortgage Loan Rate for each such Mortgage Loan, net of the Servicing Fee Rate. Code: The Internal Revenue Code of 1986, as amended. Collection Account: The segregated account, which shall at all times be an Eligible Account, established and maintained pursuant to Section 3.02(a) and entitled "[Servicer], in trust for the benefit of Holders of Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C, Collection Account". References herein to the Collection Account shall include any Sub- Servicing Account as the context requires. 14 20 Collection Period: As to any Distribution Date, the period beginning on the first day of the calendar month immediately preceding the month in which such Distribution Date occurs and ending on the last day of such calendar month. Combined Loan-to-Value Ratio: With respect to a Mortgage Loan, the ratio (expressed as a percentage) of (i) the sum of the Original Principal Amount of such related Mortgage Loan plus the outstanding principal balance (at the time of origination of such Mortgage Loan) of each mortgage loan secured by the related Mortgaged Property that is senior to such Mortgage Loan to (ii) the Appraised Value of the related Mortgaged Property determined by the Seller at the time of origination of such Mortgage Loan. Company: Aames Capital Corporation, a California corporation. Compensating Interest: As to any Distribution Date and each Mortgage Loan Group, an amount equal to the lesser of (a) the related Monthly Servicing Fee for the related Collection Period and (b) the difference between (i) 30 days' interest (at the related Mortgage Loan Rates, net of the Servicing Fee Rate) on the Principal Balance of each Mortgage Loan in such Mortgage Loan Group as to which a Principal Prepayment was received and that became a Liquidated Mortgage Loan or that was otherwise charged-off (before giving effect to any related reduction in the Principal Balance of such Mortgage Loan) by the Servicer during the related Collection Period and (ii) the amount of interest actually collected by the Servicer for such Mortgage Loans in such Mortgage Loan Group during such Collection Period. Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate trust business with respect to this Agreement shall be principally administered, which office at the date of the execution of this Agreement is located at 3 Park Plaza, Irvine, California 92614 Attention: Aames Mortgage Loan Pass-Through Certificates, Series 1997-C. Cumulative Loss Event: With respect to the Adjustable Rate Group and any Distribution Date during the indicated periods means the Loss Percentage equals or exceeds the indicated Loss Percentage:
Period Loss Percentage ------ --------------- Through September 1999 0.60% October 1999 - September 2000 1.80% October 2000 - September 2001 2.90% October 2001 - September 2002 3.70% October 2002 - September 2003 4.20% October 2003 and thereafter 4.50% Cut-off Date: September 1, 1997.
Cut-off Date Pool Balance: The aggregate of the Cut-off Date Principal Balances of the Mortgage Loans. 15 21 Cut-off Date Principal Balance: As to any Mortgage Loan, its Principal Balance as of the open of business on the Cut-off Date. Defective Mortgage Loan: Any Mortgage Loan that is required to be repurchased or substituted by the Seller pursuant to Section 2.03 or 2.05. Definitive Certificates: As defined in Section 6.02(e). Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by a Qualified Replacement Mortgage Loan. Delinquency Percentage: As to any Distribution Date and either Mortgage Loan Group, the percentage equivalent of the fraction obtained by dividing (i) the aggregate of the Principal Balances of all Mortgage Loans in such Mortgage Loan Group, as the case may be, that were then 60 days contractually delinquent as of the end of the related Collection Period or were either foreclosed upon or transferred pursuant to Section 3.06 during such Collection Period, by (ii) the Principal Balance of the Mortgage Loans included in such Mortgage Loan Group as of the last day of such Collection Period. Deposit Date: As to any Distribution Date, the third Business Day prior to such Distribution Date. Depository: The initial depository shall be The Depository Trust Company, the nominee of which is Cede & Co. The Depository shall at all times be a "clearing corporation" as defined in Section 8102(3) of the Uniform Commercial Code of the State of California, as amended, or any successor provisions thereto. Depository Participant: A broker, dealer, bank or other financial institution or other person for which, from time to time, the Depository effects book-entry transfers and pledges of securities deposited with such Depository. Determination Date: As to any Distribution Date, the last day of the calendar month immediately preceding the calendar month in which such Distribution Date occurs. Disqualified Organization: Any Person that is (i) the United States, any state or any political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality that is a corporation if all of its activities are subject to tax and a majority of its board of directors is not selected by any such governmental unit), (ii) a foreign government, international organization or any agency or instrumentality of either of the foregoing (other than an instrumentality that is a corporation if all of its activities are subject to tax and a majority of its board of directors is not selected by any such governmental unit), (iii) an organization (except certain farmers' cooperatives described in Code Section 521) exempt from tax imposed by Chapter 1 of the Code (including the tax imposed by Code Section 511 on unrelated business taxable income) on any excess inclusions (as defined in Code Section 860E(c)(1)) with respect to any Class R Certificate, (iv) rural electric and telephone cooperatives described in Code 16 22 Section 1381(a)(2)(C), and (v) any other Person so designated by the Trustee based upon an Opinion of Counsel that the holding of an ownership interest in a Class R Certificate by such Person may cause any REMIC Pool or any Person having an ownership interest in any Class R Certificate, other than such Person, to incur a liability for any tax imposed under the Code that would not otherwise be imposed but for the transfer of an ownership interest in a Class R Certificate to such Person. The terms "United States", "state" and "international organization" shall have the meanings set forth in Code Section 7701 or successor provisions. Distribution Date: The 15th day of each month or, if such day is not a Business Day, the Business Day immediately following such 15th day, beginning October 15, 1997. Eligible Account: Either (A) a segregated account or accounts maintained with an institution the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC, the unsecured and uncollateralized debt obligations of which shall be rated "A" or better by Standard & Poor's and "A2" or better by Moody's and in the highest short term rating category by Standard & Poor's and Moody's, and that is either (i) a federal savings and loan association duly organized, validly existing and in good standing under the federal banking laws, (ii) an institution duly organized, validly existing and in good standing under the applicable banking laws of any state, (iii) a national banking association duly organized, validly existing and in good standing under the federal banking laws and (iv) a principal subsidiary of a bank holding company, or (B) a trust account (which shall be a "special deposit account") maintained with the trust department of a federal or state chartered depository institution or trust company, having capital and surplus of not less than $50,000,000, acting in its fiduciary capacity, the unsecured and uncollateralized debt obligations of which shall be rated "Baa3" or better by Moody's. Any Eligible Accounts maintained with the Trustee shall conform to the preceding clause (B). ERISA: The Employee Retirement Income Security Act of 1974, as amended. ERISA Plan: Any Person that is an employee benefit plan within the meaning of Section 3(3) of ERISA or any Person that is an individual retirement account or employee benefit plan, trust or account subject to Section 4975 of the Code. ERISA Prohibited Holder: As defined in Section 6.02(c). Event of Default: As defined in Section 8.01. Extra Principal Distribution Amount: With respect to a Mortgage Loan Group and any Distribution Date, means the lesser of (x) the amount, if any, of Monthly Interest remaining in the Certificate Account with respect to such Mortgage Loan Group after application with respect to the priorities set forth in Section 5.01(a), clause First through Fifth and (y) the related Overcollateralization Deficiency. FDIC: The Federal Deposit Insurance Corporation and its successors in interest. FEMA: The Federal Emergency Management Agency and its successors in interest. 17 23 FHLMC: The Federal Home Loan Mortgage Corporation and its successors in interest. FNMA: The Federal National Mortgage Association and its successors in interest. Final Scheduled Distribution Date: with respect to each Class of Offered Certificates shall mean:
Class Final Scheduled Distribution Date ----- --------------------------------- Class A-1F Certificates May 15, 2012 Class A-2F Certificates June 15, 2017 Class A-3F Certificates March 15, 2024 Class A-4F Certificates December 15, 2025 Class A-5F Certificates November 15, 2027 Class A-6F Certificates November 15, 2027 Class A-IO Certificates September 15, 2000 Class M-1F Certificates November 15, 2027 Class M-2F Certificates November 15, 2027 Class B-1F Certificates November 15, 2027 Class B-2F Certificates November 15, 2027 Class A-1A Certificates November 15, 2027 Class M-1A Certificates November 15, 2027 Class M-2A Certificates November 15, 2027 Class B-1A Certificates November 15, 2027 Fitch: Fitch Investors Service, L.P.
Fixed Rate Class A Certificates: Any or all of the Class A-2F Certificates, Class A-3F Certificates, Class A-4F Certificates, Class A-5F Certificates, Class A-6F Certificates, or Class A-IO Certificates, as the case may be. Fixed Rate Group: The group of Mortgage Loans comprised of fixed rate mortgage loans identified in the Mortgage Loan Schedule as having been assigned to the Fixed Rate Group, including any Qualified Replacement Mortgage Loans delivered in replacement thereof. Fixed Rate Group Balance: As to any Distribution Date, the sum of the aggregate of the Principal Balances of the Mortgage Loans in the Fixed Rate Group as of the end of the related Collection Period plus in the case of any Distribution Date relating to a Collection Period that includes any part of the Commitment Period, any portion of the Fixed Rate Group Purchase Account Deposit remaining on deposit in the Purchase Account or Certificate Account as of the last day of such Collection Period. Fixed Rate Group Certificates: Collectively, the Class A-1F Certificates, the Fixed Rate Group Class A Certificates, the Class M-1F, the Class M-2F, the Class B-1F and the Class B-2F Certificates. 18 24 Fixed Rate Group Class A Certificates: Any or all of the Class A-1F Certificates, Class A-2F Certificates, Class A-3F Certificates, Class A-4F Certificates, Class A-5F Certificates, Class A-6F Certificates or Class A-IO Certificates, as the case may be. Fixed Rate Group Principal Distribution Amount: With respect to any Distribution Date, generally means the sum, without duplication, of (i) the principal actually collected by the Servicer during the Collection Period, with respect to Mortgage Loans in the Fixed Rate Group as described in the definition of Principal Distribution Amount and (ii) under certain circumstances described in Section 5.01(c) any related Extra Principal Distribution Amount. Fixed Rate Net WAC: With respect to any Distribution Date, means the weighted average Mortgage Loan Rate of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Collection Period less (i) 0.50% per annum and (ii) for the first 36 Distribution Dates, the product of (a) 7.00% and (b) the Class A-IO Notional Amount divided by the aggregate Principal Balance of such Mortgage Loans as of such first day of such Collection Period. Foreign Person: A Person that is not a citizen or resident of the United States, a corporation, partnership, or other entity created or organized in or under the laws of the United States or any political subdivision thereof, an estate that is subject to United States federal income tax regardless of the source of its income or a trust if (a) a court within the United States is able to exercise primary supervision of the Administration thereof and (b) one or more United States fiduciaries have the authority to control all substantial decisions of the trust. Formula Pass-Through Rate: With respect to any Class of Adjustable Rate Group Certificates, the Pass-Through Rate in effect for such Class if the Adjustable Rate Group Available Funds Cap is disregarded. Gross Margin: With respect to an Adjustable Rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note, which amount is added to the Index in accordance with the terms of the related Mortgage Note to determine the Mortgage Loan Rate. Group Factor: As to any Distribution Date and each Mortgage Loan Group, the percentage (carried to eight places, rounded down) obtained by dividing the aggregate Principal Balances of the Mortgage Loans in the related Mortgage Loan Group (after giving effect to any distribution of principal on the related Certificates on such Distribution Date) by the sum of the aggregate Principal Balances of the Mortgage Loans in the related Mortgage Loan Group as of the Cut-off Date. Index: With respect to any Adjustable Rate Mortgage Loan, the applicable index for computing the Mortgage Loan Rate as specified in the Mortgage Note. Initial Certificate Principal Balance: With respect to each Class of Certificates that has a Certificate Principal Balance, means: 19 25
Initial Certificate Class Principal Balance ----- ------------------- Class A-1F Certificates $ 63,000,000.00 Class A-2F Certificates $ 20,790,000.00 Class A-3F Certificates $ 25,000,000.00 Class A-4F Certificates $ 10,000,000.00 Class A-5F Certificates $ 12,000,000.00 Class A-6F Certificates $ 15,000,000.00 Class M-1F Certificates $ 9,778,000.00 Class M-2F Certificates $ 8,889,000.00 Class B-1F Certificates $ 8,000,000.00 Class B-2F Certificates $ 5,335,000.00 Class A-1A Certificates $ 244,758,000.00 Class M-1A Certificates $ 27,739,000.00 Class M-2A Certificates $ 27,739,000.00 Class B-1A Certificates $ 26,109,000.00
Insurance Proceeds: With respect to any Distribution Date, proceeds paid by any insurer and received by the Servicer during the related Collection Period pursuant to any insurance policy covering a Mortgage Loan or the related Mortgaged Property, including any deductible payable by the Servicer with respect to a blanket insurance policy pursuant to Section 3.04 and the proceeds from any fidelity bond or errors and omission policy pursuant to Section 3.12 (to the extent such payments compensate for losses that would otherwise be payable to Certificateholders pursuant to this Agreement), net of any component thereof covering any expenses incurred by or on behalf of the Servicer and specifically reimbursable under this Agreement. Interest Carry Forward Amount: With respect to any Class of Offered Certificates on any Distribution Date, means the amount, if any, by which (i) the Accrued Certificate Interest on such Class as of such Distribution Date plus any outstanding Interest Carry Forward Amount with respect to such Class from the preceding Distribution Date (together with interest on such outstanding Interest Carry Forward Amount at the related Pass-Through Rate for the related Interest Period to the extent lawful) exceeds (ii) the amount of Monthly Interest actually distributed to the holders of such Certificates on such Distribution Date. Interest Period: With respect to the Fixed Rate Group Certificates other than the Class A-1F Certificates, the calendar month preceding the month in which such Distribution Date occurs (and with respect to the Distribution Date occurring in October 1997, from the Closing Date to September 30, 1997); with respect to any Adjustable Rate Group Certificate and any Class A-1F Certificate and the first Interest Period, the period beginning on the Closing Date and ending on the day preceding the Distribution Date in October 1997, and as to any subsequent Distribution Date, the period beginning on the immediately preceding Distribution Date and ending on the day prior to the related Distribution Date. 20 26 Interest Shortfall: As to any Distribution Date, the amount of any Prepayment Interest Shortfall and Relief Act Shortfall for the related Mortgage Loan Group. Investment Company Act: The Investment Company Act of 1940, as amended. Junior Mortgage Loan: Any Mortgage Loan secured by a Mortgage with a lien of other than first priority. LIBOR: With respect to the October 1997 Distribution Date, 5.65625% per annum. With respect to any subsequent Distribution Date, the per annum rate determined by the Trustee on the related LIBOR Determination Date on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits as such rates appear on the Dow Jones Telerate Service Page 3750 (or any replacement page on that service for the purpose of displaying London interbank offered rates of major banks) as of 11:00 a.m. (London time) on such LIBOR Determination Date. On each LIBOR Determination Date, LIBOR will be established by the Trustee as follows: (i) if on such LIBOR Determination Date two or more Reference Banks provide such offered quotations, LIBOR shall be the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 0.0625%) of such offered quotations. (ii) if on such LIBOR Determination Date, fewer than two Reference Banks provide such offered quotations, LIBOR shall be the greater of (x) LIBOR as determined on the previous LIBOR Determination Date and (y) the Reserve Interest Rate. LIBOR Determination Date: With respect to any Interest Period after the first Interest Period, the second London Business Day immediately preceding the first day of such Interest Period. Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage Loan as to which the Servicer has determined, in accordance with the servicing procedures specified herein, during the related Collection Period that all Liquidation Proceeds that it expects to recover from or on account of such Mortgage Loan have been recovered. Liquidation Expenses: Expenses that are incurred by the Servicer in connection with the liquidation of any Mortgage Loan and not recovered under any insurance policy or from any Mortgagor. Such expenses shall include, without limitation, legal fees and expenses, real estate brokerage commissions, any unreimbursed amount expended by the Servicer pursuant to Section 3.06 respecting the related Mortgage Loan (including, without limitation, amounts voluntarily advanced to correct defaults on each mortgage loan that is senior to such Mortgage Loan), any other related and previously unreimbursed Servicing Advances and any related and previously unreimbursed Property Protection Expenses. Liquidation Proceeds: Cash (other than Insurance Proceeds) received in connection with the liquidation of any Mortgaged Property, whether through trustee's sale, foreclosure sale, condemnation, taking by eminent domain or otherwise received in respect of any Mortgage Loan 21 27 foreclosed upon as described in Section 3.06 (including, without limitation, proceeds from the rental of the related Mortgaged Property). Liquidation Report: A liquidation report in the form of Exhibit F attached hereto. Loan-to-Value Ratio: The Original Principal Amount of a Mortgage Loan as a percentage of the Appraised Value of the related Mortgaged Property determined by the Seller at the time of origination of such Mortgage Loan. London Business Day: A day on which banks are open for dealing in foreign currency and exchange in London and New York City. Loss Percentage: As to any Distribution Date and either Mortgage Loan Group, the percentage equivalent of the fraction obtained by dividing (i) the principal amount of cumulative Realized Losses on Mortgage Loans in such Mortgage Loan Group from the Cut-off Date through the end of the related Collection Period by (ii) the aggregate of the Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the Cut-off Date. Maximum Rate: With respect to an Adjustable Rate Mortgage Loan, any absolute maximum Mortgage Loan Rate set by provisions in the related Mortgage Note. Minimum Rate: With respect to an Adjustable Rate Mortgage Loan, any absolute minimum Mortgage Loan Rate, set by provisions in the related Mortgage Note, subject to the initial Mortgage Loan Rate first adjusting to a level in excess of such minimum Mortgage Loan Rate in accordance with the terms of the Mortgage Note. Monthly Advance: As defined in Section 5.02(a). Monthly Excess Cashflow Amount: With respect to either Mortgage Loan Group and any Distribution Date means the sum of (x) the amount, if any, of Monthly Interest remaining in the Certificate Account with respect to such Mortgage Loan Group after application with respect to the priorities set forth in Section 5.01(a), clause First through Fifth, plus (y) the amount of any Overcollateralization Release Amount with respect to such Mortgage Loan Group for such Distribution Date. Monthly Excess Interest Amount: With respect to either Mortgage Loan Group and any Distribution Date means the excess, if any, of the interest accrued on the related Mortgage Loans at weighted average net Mortgage Loan Rate for the Mortgage Loans in such Mortgage Loan Group over the Accrued Certificate Interest for the related Offered Certificates during the related Interest Period. Monthly Interest: With respect to either Mortgage Loan Group and any Distribution Date, means the aggregate of the following amounts in respect of interest and such Mortgage Loan Group: 22 28 (i) all payments in respect of or allocable to interest received or deemed to have been received during the related Collection Period, net of amounts representing interest accrued in respect of any period prior to the Cut-off Date; (ii) all Trust Insurance Proceeds received during the related Collection Period; (iii) all Net Liquidation Proceeds received during the related Collection Period (excluding any amount distributed to the Holders of the Class C Certificates pursuant to Section 3.06) (iv) the aggregate of the amounts deposited in the Certificate Account on the related Deposit Date by the Seller or the Servicer, as applicable, in connection with any purchase, repurchase, shortage or substitution pursuant to Section 2.03, 2.05, 3.01, 3.03 or 3.06; (v) the aggregate of the amounts deposited in the Certificate Account by the Servicer in connection with a purchase pursuant to Section 10.01; (vi) the amount of Monthly Advances made by the Servicer in respect of such Distribution Date pursuant to Section 5.02(a); (vii) the amount of any Compensating Interest paid by the Servicer in respect of such Distribution Date; and (viii) in the case of the Distribution Date occurring in October 1997, the amount deposited in the Certificate Account in respect of the Closing Date Deposit; reduced by the sum of: (X) the Monthly Servicing Fee and any other compensation payable to the Servicer pursuant to Section 3.08 for the related Collection Period (without regard to any Compensating Interest payable therefrom) to the extent not previously paid to the Servicer; (Y) the aggregate amount of Monthly Advances and Servicing Advances (other than those included in the Liquidation Expenses for any Liquidated Mortgage Loan and reimbursed from the related Liquidation Proceeds) reimbursable to the Servicer on such Distribution Date pursuant to the provisions of this Agreement; and (Z) the aggregate amounts (i) deposited into the Collection Account or Certificate Account that may not be withdrawn therefrom pursuant to a final and nonappealable order of a United States bankruptcy court of competent jurisdiction imposing a stay pursuant to Section 362 of the United States Bankruptcy Code and that would otherwise have been included in Monthly Interest on such Distribution Date and (ii) received by the Trustee that are recoverable and sought to be recovered from the Trustee as a voidable preference by a trustee in bankruptcy pursuant to the United 23 29 States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction. Monthly Mortgage Payment: With respect to any Mortgage Note, the amount of each monthly payment (other than any final balloon payment) payable under such Mortgage Note in accordance with its terms, including one month's accrued interest on the related Principal Balance at then applicable Mortgage Loan Rate but net of any portion of such monthly payment that represents late payment charges, prepayment or extension fees or collections allocable to payments to be made by Mortgagors for payment of insurance premiums or similar items. Monthly Servicing Fee: With respect to any Collection Period and each Mortgage Loan Group, 1/12 of the product of the Servicing Fee Rate and the aggregate Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the close of business on the Determination Date occurring in the preceding month (or, in the case of the first Collection Period, the Principal Balance of the related Mortgage Loans as of the Closing Date. The Monthly Servicing Fee shall be payable on the following Deposit Date to the Servicer as servicing compensation hereunder pursuant to Section 3.08. Moody's: Moody's Investors Service, Inc. and its successors in interest. Mortgage: The mortgage, deed of trust or other instrument creating a first, second or third lien on an estate in fee simple in real property securing a Mortgage Loan. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to such Mortgage File pursuant to this Agreement. Mortgage Loan: Each of the Mortgage Loans transferred and assigned to the Trustee pursuant to Section 2.01 or 2.02 that from time to time comprise part of the Trust, the Mortgage Loans originally so held being identified in the Mortgage Loan Schedule attached hereto as Exhibit B. Mortgage Loan Group: Either the Fixed Rate Group or the Adjustable Rate Group. References herein to any Class or Classes of Certificates being related to a Mortgage Loan Group, shall mean (A) in the case of the Fixed Rate Group, the Fixed Rate Group Class A Certificates, the Class M-1F, Class M-2F, Class B-1F or Class B-2F Certificates and the related Class R Certificates and (B) in the case of the Adjustable Rate Group, the Class A-1A, Class M-1A, Class M-2A and Class B-1A Certificates and the related Class R Certificates. Mortgage Loan Rate: With respect to any Adjustable Rate Mortgage Loan, the per annum rate of interest computed in accordance with the provisions of the related Mortgage Note as the sum of the Index and the Gross Margin, subject to any Minimum Rate, the Maximum Rate or periodic limitation on adjustments to such rate applicable from time to time to the calculation of interest thereon. As to any other Mortgage Loan, the fixed per annum rate of interest applicable to the calculation of interest thereon specified in the related Mortgage Note. 24 30 Mortgage Loan Schedule: As of any date, the schedule of Mortgage Loans separated by Mortgage Loan Group. The initial schedule of Mortgage Loans as of the Cut-off Date is attached hereto as Exhibit B and sets forth as to each such Mortgage Loan, among other things, (a) its identifying number and the name of the related Mortgagor; (b) the street address of the related Mortgaged Property including the state, county and zip code; (c) its date of origination; (d) the original number of months to stated maturity; (e) its original stated maturity; (f) its Original Principal Amount; (g) its Cut-off Date Principal Balance; (h) the related Mortgage Loan Rate as of the Cut-off Date and, with respect to any Adjustable Rate Mortgage Loan, the related Index, Gross Margin, Minimum Rate, Maximum Rate and any periodic limitations on adjustment; (i) the scheduled Monthly Mortgage Payment; (j) the date in each month on which the related Monthly Mortgage Payments are due; (k) its Combined Loan-to-Value Ratio or the ratio, expressed as a percentage, of the Original Principal Amount of such Mortgage Loan to the Appraised Value of the related Mortgaged Property, as applicable; (l) the lien status of the related Mortgage and, with respect to any Junior Mortgage Loan, the principal amount (as of the date of origination) of all related Senior Liens; (m) whether the related Mortgaged Property is owner-occupied or non-owner-occupied; (n) whether the related Mortgaged Property is a single-family residence, a two- to four-family residence or a unit in a condominium or planned unit development; (o) whether the Mortgage Loan has been originated by an Affiliate of the Company; and (p) whether the Mortgage Loan is being serviced by a Sub- Servicer and, if so, the identity of such Sub-Servicer. Mortgage Note: The note or other instrument evidencing the indebtedness of a Mortgagor under the related Mortgage Loan. Mortgaged Property: The underlying property securing a Mortgage Loan. Mortgagor: The obligor under a Mortgage Note. Net Liquidation Proceeds: As to any Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses. For all purposes of this Agreement, Net Liquidation Proceeds shall be allocated first to accrued and unpaid interest on the related Mortgage Loan and then to the Principal Balance thereof. Non-permitted Foreign Holder: As defined in Section 6.02(c). Nonrecoverable Advance: Any Servicing Advance that, in the Servicer's reasonable judgment, would not be ultimately recoverable by the Servicer from late collections, Insurance Proceeds or Liquidation Proceeds on the related Mortgage Loan or otherwise, as evidenced by an Officer's Certificate delivered to the Trustee no later than the Business Day following the Servicer's determination thereof. 25 31 Notional Amount: Equals the lesser of (a) the following values during the Collection Periods indicated:
Collection Periods Beginning Notional Amount ---------------------------- --------------- September 1, 1997 to August 31, 1998 $40,500,000 September 1, 1998 to August 31, 1999 $31,500,000 September 1, 1999 to February 29, 2000 $18,000,000 March 1, 2000 to August 31, 2000 $13,500,000
or (b) the aggregate Principal Balance of the Mortgage Loans in the Fixed Rate Group as of the first day of the related Collection Period. Offered Certificates: The Certificates other than the Retained Certificates. Officer's Certificate: A certificate signed by the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President of the Seller or the Servicer, as the case may be, and delivered to the Trustee or each Rating Agency, as the case may be. Opinion of Counsel: A written opinion of counsel reasonably acceptable to the Trustee reasonably acceptable to it, who may be in-house counsel for the Seller or the Servicer (except with respect to any opinion with respect to or concerning the REMIC status of any REMIC Pool). Any expense related to obtaining an Opinion of Counsel for an action requested by a party shall be borne by the party required to obtain such opinion or seeking to effect the action that requires the delivery of such Opinion of Counsel. Original Pool Balance: $504,136,466.10 Original Principal Amount: With respect to any Mortgage Loan, the original principal amount due under the related Mortgage Note as of its date of origination. Overcollateralization Amount: With respect to a Mortgage Loan Group and as of any Distribution Date means the excess of (x) the aggregate of the outstanding principal balances of the Mortgage Loans in such Mortgage Loan Group as of the last day of the immediately preceding Collection Period over (y) the Aggregate Certificate Principal Balance of the related Offered Certificates (after taking into account all distributions of principal collections on such Distribution Date). Overcollateralization Deficiency: With respect to either Mortgage Loan Group and any Distribution Date, means the excess, if any, of (x) the related Targeted Overcollateralization Amount over (y) the related Overcollateralization Amount, calculated for this purpose after taking into account the reduction on such Distribution Date of the Certificate Principal Balances of all related Classes of Offered Certificates resulting from principal distributions (other than reductions resulting from the distribution of any related Extra Principal Distribution Amount), but before taking into account any related Applied Realized Loss Amount for such Distribution Date. 26 32 Overcollateralization Release Amount: With respect to either Mortgage Loan Group and any Distribution Date, means, the lesser of (x) the related Fixed Rate Group or Adjustable Rate Group Principal Distribution Amount (other than any related Extra Principal Distribution Amount) and (y) the excess of (i) the related Overcollateralization Amount, assuming that 100% of such related Principal Distribution Amount (excluding the application of any Extra Principal Distribution Amount) is applied to the payment of principal on the related Offered Certificates on such Distribution Date over (ii) the related Targeted Overcollateralization Amount. Payment Ahead: Any payment of one or more Monthly Mortgage Payments remitted by a Mortgagor with respect to a Mortgage Note in excess of the Monthly Mortgage Payment due during such Collection Period with respect to such Mortgage Note, which sums the related Mortgagor has instructed the Servicer to apply to Monthly Mortgage Payments due in one or more subsequent Collection Periods. A Monthly Mortgage Payment that was a Payment Ahead shall, for purposes of computing certain amounts under this Agreement, be deemed to have been received by the Servicer on the date in the related Collection Period on which such Monthly Mortgage Payment would have been due if such Monthly Mortgage Payment was not a Payment Ahead. Payoff Notice: The certification delivered by the Servicer in connection with any payment in full of the outstanding principal balance of a Mortgage Loan pursuant to Section 3.07, to be substantially in the form of Exhibit E. Percentage Interest: With respect to any Certificate, the undivided percentage interest (carried to eight places, rounded down) obtained by dividing the original principal balance of such Certificate by the Initial Certificate Principal Balance or Notional Amount of the related Class, as applicable, and multiplying the result by 100; provided that with respect to a Class C Certificate or Class R Certificate, Percentage Interest means the undivided percentage interest set forth on the face of such Class R Certificate, which in the aggregate shall not exceed 100%. Permitted Investments: One or more of the following obligations, instruments and securities: (a) direct general obligations of, or obligations fully and unconditionally guaranteed as to the timely payment of principal and interest by, the United States or any agency or instrumentality thereof, provided such obligations are backed by the full faith and credit of the United States; (b) Federal Housing Administration debentures, FHLMC senior debt obligations and FNMA senior debt obligations, but excluding any of such securities whose terms do not provide for payment of a fixed dollar amount upon maturity or call for redemption or that are not rated in one of the two highest long-term rating categories by each Rating Agency; (c) federal funds, certificates of deposit, time and demand deposits and banker's acceptances (in each case having original maturities of not more than 365 days) of any bank or trust company incorporated under the laws of the United States or any state thereof, provided that the short-term debt obligations of such bank or trust company at the date of 27 33 acquisition thereof have been rated "A-1" or better by Standard & Poor's and Prime-1 by Moody's; (d) deposits of any bank or savings and loan association that has combined capital, surplus and undivided profits of at least $100,000,000 which deposits are held up to the applicable limits insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC; (e) commercial paper (having original maturities of not more than 180 days) that has the highest short term rating of each of Standard & Poor's and Moody's; (f) investments in money market funds rated "AAAm" or "AAAm-G" by Standard & Poor's and Aaa by Moody's; and (g) investments approved in writing by each of the Rating Agencies; provided that no investment described hereunder shall evidence either the right to receive (i) only interest with respect to obligations underlying such instrument or (ii) both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provided a yield to maturity at par greater than 120% of the yield to maturity of the underlying obligations; and provided, further, that no instrument described hereunder may be purchased at a price greater than par if such instrument may be prepaid or called at a price less than its purchase price prior to stated maturity. Permitted Investments shall mature not later than the Business Day prior to the date on which such monies will be needed to make payments, or in the case of Permitted Investments held in the Purchase Account, shall be available on the Business Day next succeeding the date the Trustee receives the Addition Notice that such monies will be needed. Notwithstanding the foregoing, with respect to investment of amounts in any account, any of the foregoing obligations, instruments or securities will not be Permitted Investments to the extent that an investment therein will cause then outstanding principal amount thereof in which such funds are then invested to exceed $25,000,000 (such investments being valued at par). Person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Pool Balance: As to any Distribution Date, the sum of the Fixed Rate Group Balance and the Adjustable Rate Group Balance. Prepayment Interest Shortfall: As to any Distribution Date and the Fixed Rate Group Mortgage Loans, the amount, if any, by which the amount described in clause (b) of the first sentence of the definition of Compensating Interest for such Distribution Date exceeds the Monthly Servicing Fee for the Fixed Rate Group Mortgage Loans in the related Collection Period. As to any Distribution Date and the Adjustable Rate Group Mortgage Loans, the amount, if any, by which the amount described in clause (b) of the second sentence of the definition of Compensating Interest for 28 34 such Distribution Date exceeds the Monthly Servicing Fee for the Adjustable Rate Group Mortgage Loans in the related Collection Period. Principal Balance: As to any Mortgage Loan and any Determination Date, the actual outstanding principal amount thereof as of the close of business on the Determination Date in the preceding month (or, in the case of the first Determination Date, as of the Cut-off Date) less (i) any Principal Payments received in respect of such Mortgage Loan during the related Collection Period, (ii) Net Liquidation Proceeds and Trust Insurance Proceeds allocable to principal recovered or collected in respect of such Mortgage Loan during the related Collection Period, (iii) the portion of the Purchase Price allocable to principal to be remitted by the Seller or the Servicer to the Trustee on the next succeeding Deposit Date in connection with a purchase or repurchase of such Mortgage Loan pursuant to Section 2.03, 2.05, 3.01, 3.06 or 10.01, to the extent such amount is actually received by the Trustee on such Deposit Date, (iv) the amount to be remitted by the Seller to the Trustee on the next succeeding Deposit Date in connection with a substitution of a Qualified Replacement Mortgage Loan for such Mortgage Loan pursuant to Section 2.03 or 2.05, to the extent such amount is actually received by the Trustee on such Deposit Date and (v) the amount to be remitted to the Trustee on the next succeeding Deposit Date in connection with a purchase of such Mortgage Loan pursuant to Section 10.01; provided, however that a Mortgage Loan that has become a Liquidated Mortgage Loan since the preceding Determination Date (or, in the case of the first Determination Date, since the Cut-off Date) will be deemed to have a Principal Balance of zero on the current Determination Date. Principal Distribution Amount: With respect to either Mortgage Loan Group and any Distribution Date, means the aggregate of the following amounts in respect of principal and such Mortgage Loan Group: (i) Principal Payments received or deemed to have been received during the related Collection Period; (ii) all Trust Insurance Proceeds received during the related Collection Period; (iii) all Net Liquidation Proceeds received during the related Collection Period (excluding any amount distributed to the Holders of the Class C Certificates pursuant to Section 3.06) (iv) the aggregate of the amounts deposited in the Certificate Account on the related Deposit Date by the Seller or the Servicer, as applicable, in connection with any purchase, repurchase, shortage or substitution pursuant to Section 2.03, 2.05, 3.01, 3.03 or 3.06; (v) the aggregate of the amounts deposited in the Certificate Account by the Servicer in connection with a purchase pursuant to Section 10.01; and (vi) the amount of Monthly Advances made by the Servicer in respect of such Distribution Date pursuant to Section 5.02(a); 29 35 reduced by the sum of: (X) the aggregate amount of Monthly Advances and Servicing Advances (other than those included in the Liquidation Expenses for any Liquidated Mortgage Loan and reimbursed from the related Liquidation Proceeds) reimbursable to the Servicer on such Distribution Date pursuant to the provisions of this Agreement; and (Y) the aggregate amounts (i) deposited into the Collection Account or Certificate Account that may not be withdrawn therefrom pursuant to a final and nonappealable order of a United States bankruptcy court of competent jurisdiction imposing a stay pursuant to Section 362 of the United States Bankruptcy Code and that would otherwise have been included in Monthly Interest on such Distribution Date and (ii) received by the Trustee that are recoverable and sought to be recovered from the Trustee as a voidable preference by a trustee in bankruptcy pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction. Principal Payment: As to any Mortgage Loan and Collection Period, all amounts received or, in the case of the principal portion of any Payment Ahead, deemed to have been received by the Servicer from or on behalf of the related Mortgagor during such Collection Period (including Principal Prepayments) that, at the time of receipt or, in the case of any Payment Ahead, at the time such Payment Ahead is deemed to have been received, were applied or were required to be applied by the Servicer in reduction of the Principal Balance of such Mortgage Loan. Principal Prepayment: As to any Mortgage Loan and Collection Period, any payment by a Mortgagor or other recovery in respect of principal on a Mortgage Loan (including Net Liquidation Proceeds) that, in the case of a payment by a Mortgagor, is received in advance of its scheduled due date and is not a Payment Ahead. Property Protection Expenses: Expenses (exclusive of overhead expenses) reasonably paid or incurred by or for the account of the Servicer in connection with the preservation or protection of a Mortgaged Property or the security of a Mortgaged Property, including (a) hazard insurance policy premiums, (b) real estate taxes and property repair, replacement, protection and preservation expenses, (c) amounts expended to cure or prevent any default with respect to any mortgage loan senior to the related Mortgage Loan and (d) similar expenses reasonably paid or incurred to preserve or protect the value of such Mortgaged Property or security (including but not limited to reasonable legal fees and expenses). Purchase Price: With respect to (a) any Defective Mortgage Loan or (b) any Mortgage Loan to be purchased by the Servicer pursuant to Section 3.01 or Section 3.06, an amount equal to (i) the sum of (A) the Principal Balance of such Mortgage Loan or Defective Mortgage Loan, as the case may be, as of the beginning of the Collection Period next preceding the Deposit Date on which such repurchase or purchase is required to occur, (B) interest computed at the applicable Mortgage Loan Rate on such Principal Balance from the date to which interest was last paid by the Mortgagor to the last day of the Collection Period immediately preceding the Deposit Date on which such repurchase 30 36 or purchase occurs and (C) any previously unreimbursed Servicing Advances made on or in respect of such Defective Mortgage Loan or Mortgage Loan, as the case may be, less (ii) any payments of principal and interest in respect of such Defective Mortgage Loan or Mortgage Loan, as the case may be, made by or on behalf of the related Mortgagor during such Collection Period; provided that the Purchase Price with respect to any Restricted Mortgage Loan to be purchased by the Servicer pursuant to Section 3.06 will be the fair market value of the related Mortgaged Property as described in such Section 3.06. Qualified Replacement Mortgage Loan: A Mortgage Loan that is substituted for a Deleted Mortgage Loan pursuant to Section 2.03 or Section 2.05 that must, at the end of the Collection Period preceding the date of such substitution, (i) have an outstanding principal balance (when taken together with any other Qualified Replacement Mortgage Loan being substituted for such Deleted Mortgage Loan), not in excess of and not substantially less than the unpaid principal balance of the Deleted Mortgage Loan at the end of the Collection Period preceding the date of substitution, (ii) if the Deleted Mortgage Loan is an Adjustable Rate Mortgage Loan, have the Mortgage Loan Rate computed on substantially the same basis as the Mortgage Loan Rate on the related Mortgage Loan, utilizing the same Index and having a Gross Margin or Minimum Rate not less than (and not more than one percentage point in excess of) the Gross Margin and Minimum Rate applicable to the Deleted Mortgage Loan and if the Deleted Mortgage Loan is not an Adjustable Rate Mortgage Loan, have a Mortgage Loan Rate not less than (and not more than one percentage point in excess of) the Mortgage Loan Rate of the Deleted Mortgage Loan, (iii) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (iv) have a Combined Loan-to-Value Ratio equal to or lower than the Combined Loan-to-Value Ratio of the Deleted Mortgage Loan, (v) satisfy the criteria set forth from time to time in the definition "qualified replacement mortgage" at Section 860G(a)(4) of the Code, (vi) have the same or a superior lien priority as the Deleted Mortgage Loan, (vii) comply as of the date of substitution with each representation and warranty set forth in Section 2.05, (viii) have the same or better property type as the Deleted Mortgage Loan and (ix) have the same or better occupancy status. In the event that one or more mortgage loans are proposed to be substituted for one or more Deleted Mortgage Loans, the foregoing tests may be met on a weighted average basis or other aggregate basis except that the requirements of clauses (v), (vi), (vii), (viii) and (ix) hereof must be satisfied as to each Qualified Replacement Mortgage Loan. Rating Agencies: Fitch and Moody's (each, a "Rating Agency"). If either such agency or a successor is no longer in existence, "Rating Agency" shall be such nationally recognized statistical credit rating agency, or other comparable Person, designated by the Servicer, notice of which designation shall be given to the Trustee. Realized Loss: With respect to any Liquidated Mortgage Loan, the amount, if any, by which the Principal Balance of such Mortgage Loan and accrued and unpaid interest thereon (determined as of the Determination Date immediately prior to such Mortgage Loan becoming a Liquidated Mortgage Loan) exceeds the Net Liquidation Proceeds, if any, in respect of such Mortgage Loan, which amount shall in no event exceed the Principal Balance of such Mortgage Loan (determined as of the Determination Date immediately prior to such Mortgage Loan becoming a Liquidated Mortgage Loan). 31 37 Record Date: As to any Distribution Date, the close of business, if applicable, on the last Business Day of the calendar month immediately preceding such Distribution Date. Reference Banks: Bankers Trust Company, Barclay's Bank PLC and National Westminster Bank PLC; provided that, if any of the foregoing banks are deemed by the Servicer (as indicated in writing to the Trustee) not suitable to serve as a Reference Bank, then any leading banks selected by the Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London, (ii) whose quotations appear on the Dow Jones Telerate Service Page 3750 on the LIBOR Determination Date in question, (iii) that have been designated as such by the Trustee and (iv) not controlling, controlled by, or under common control with the Company or any originator. Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as amended. Relief Act Shortfall: As to any Distribution Date and either Mortgage Loan Group, the amount of any reduction of interest collectible on any Mortgage Loan in either Mortgage Loan Group for the related Collection Period due to the application of the Relief Act. REMIC: A "real estate mortgage investment conduit" as defined in Code Section 860D, and in particular, any of the REMIC IF, REMIC IA, REMIC II and REMIC III as indicated by the context. REMIC Pool: With respect to the REMIC IF, the REMIC IF Pool which shall be the assets of the Trust attributable to the Fixed Rate Group, the REMIC IF Regular Interests, the REMIC IA Regular Interests and the REMIC II Regular Interests; with respect to the REMIC IA, the REMIC IA Pool which shall be the assets of the Trust attributable to the Adjustable Rate Group, the REMIC IA Regular Interests and the REMIC II Regular Interests; with respect to the REMIC II, the REMIC II Pool which shall be the REMIC IF Regular Interests and the REMIC IA Regular Interests; and with respect to REMIC III, the REMIC III Pool which shall be the REMIC II Regular Interests. REMIC Provisions: Provisions of the federal income tax law relating to REMICs that appear at Sections 860A through 860G of Part IV of Subchapter M of Chapter 1 of Subtitle A of the Code, and related provisions, and U.S. Department of the Treasury proposed, temporary or final regulations and rulings promulgated thereunder, as the foregoing may be in effect from time to time. REO Property: As defined in Section 5.02(a). Reserve Interest Rate: With respect to any LIBOR Determination Date, the rate per annum that the Trustee determines to be either (i) the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 0.0625%) of the one-month U.S. dollar lending rates that New York City banks selected by the Trustee are quoting on the relevant LIBOR Determination Date to the principal London offices of leading banks in the London interbank market or (ii) in the event that the Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate that New York City banks selected by the Trustee are quoting on such LIBOR Determination Dates to leading European banks. 32 38 Responsible Officer: When used with respect to the Trustee, the Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors or Trustees, the President, the Chairman of the Committee on Trust Matters, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and to whom, with respect to a particular matter, such matter is referred because of such officer's knowledge of and familiarity with the particular subject. Restricted Mortgage Loan: A Mortgage Loan that as of the Closing Date was 90 or more days contractually delinquent. Restricted Mortgaged Property: With respect to any Restricted Mortgage Loan, means the Mortgaged Property securing such Restricted Mortgage Loan. Retained Certificates: Collectively, each of the Class C Certificates and Class R Certificates. Rolling Delinquency Percentage: For any Distribution Date and either Mortgage Loan Group, the average of the Delinquency Percentages for such Mortgage Loan Group as of the last day of each of the three (or one or two in the case of the first three Distribution Dates, as applicable) most recently ended Collection Periods. Securities Act: The Securities Act of 1933, as amended. Seller: The Company. Senior Enhancement Percentage: With respect to a Mortgage Loan Group and any Distribution Date means the percentage obtained by dividing (x) the sum of (i) the Aggregate Certificate Principal Balance of the related Subordinate Certificates (or, after the Certificate Principal Balance of each Class of related Class A Certificates has been reduced to zero, the Aggregate Certificate Principal Balance of the related Subordinate Certificates other than the most senior Class of such related Subordinate Certificates then outstanding) and (ii) the related Overcollateralization Amount, in each case after taking into account distributions in respect of the Fixed Rate Group Principal Distribution Amount or Adjustable Rate Group Principal Distribution Amount, as appropriate, to the related Offered Certificateholders on such Distribution Date by (y) the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date. Senior Lien: With respect to any Junior Mortgage Loan, any liens on the related Mortgaged Property of higher priority. Servicer: The Company or any successor servicer appointed as provided pursuant to this Agreement. 33 39 Servicer Remittance Report: The monthly report prepared by the Servicer and delivered to the Trustee pursuant to Section 4.01. Servicing Advances: All reasonable and customary "out-of-pocket" costs and expenses incurred in the performance by the Servicer of its servicing obligation, including, but not limited to, the cost of (i) the preservation, restoration and protection of the Mortgaged Property, including without limitation advances in respect of real estate taxes and assessments and insurance premiums on fire, hazard and, if applicable, flood insurance policies, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management and liquidation of any REO Property, (iv) compliance with the obligations under Section 3.04 and (v) expenditures relating to the correction of a default on any Senior Lien pursuant to Section 3.06 in connection with the liquidation of a Mortgage Loan. Servicing Fee Rate: With respect to each Mortgage Loan Group and each Collection Period, 0.50%. Servicing Officer: Any officer of the Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name and specimen signature appear on a list of servicing officers annexed to an Officer's Certificate furnished to the Trustee by the Servicer, as such list may from time to time be amended. Specified Senior Enhancement Percentage: With respect to any date of determination, means 37.00% with respect to the Fixed Rate Group and 50.00% plus the applicable Targeted Stepdown Percentage with respect to the Adjustable Rate Group. Startup Day: As defined in Section 2.07. Statement to Certificateholders: As defined in Section 5.03. Stepdown Date: With respect to either Mortgage Loan Group, the later to occur of (x) the Distribution Date in October 2000 or (y) the first Distribution Date on which the related Senior Enhancement Percentage (after taking into account distributions on such Distribution Date in respect of principal collections) is greater than or equal to the related Specified Senior Enhancement Percentage. Stepped Up Enhancement Percentage: With respect to each Mortgage Loan Group on any Distribution Date, means a percentage equal to (x) 100% minus (y) in the case of the Fixed Rate Group, 2.0 times and in the case of the Adjustable Rate Group, 2.5 times, the Rolling Delinquency Percentage. Subordinate Certificates: With respect to the Fixed Rate Group Certificates, the Class M-1F, Class M-2F, Class B-1F and Class B-2F Certificates and with respect to the Adjustable Rate Group Certificates, the Class M-1A, Class M-2A and Class B-1A Certificates. 34 40 Sub-Servicer: Any Person, including an Affiliate of the Servicer, with whom the Servicer has entered into a Sub-Servicing Agreement and who satisfies the requirements set forth in Section 3.15 hereof in respect of the qualification of a Sub-Servicer. The Sub-Servicers with respect to any of the Mortgage Loans as of the Cut-off Date are listed on Schedule I attached to this Agreement. Sub-Servicing Account: Any segregated account, which shall at all times be an Eligible Account, established and maintained pursuant to Section 3.02(b) and entitled "[Sub-Servicer], in trust for the benefit of Holders of Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C, Collection Account". References herein to the Collection Account shall include any Sub-Servicing Account as the context requires. Sub-Servicing Agreement: A written contract between the Servicer and any Sub-Servicer relating to the servicing and/or administration of certain Mortgage Loans. Targeted Overcollateralization Amount: With respect to (x) the Fixed Rate Group means (i) prior to the related Stepdown Date, for the first 36 months, 2.75%, and thereafter, 0.50%, of the Initial Certificate Principal Balance of the related Offered Certificates, or (ii) on and after the related Stepdown Date, the greater of (A) 1.00% of the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date and (B) $888,965 and (y) the Adjustable Rate Group means (i) prior to the related Stepdown Date, 3.00%, or upon the occurrence and continuance of a related Cumulative Loss Event, 5.10%, of the Initial Certificate Principal Balance of the related Offered Certificates and (ii) on and after the related Stepdown Date, the greater of (A) the applicable Targeted Stepdown Percentage of the aggregate of the outstanding Principal Balances of the Mortgage Loans in such Mortgage Loan Group as of the related Determination Date and (B) $1,631,725; provided, however, that if a Trigger Event has occurred and is continuing for either Mortgage Loan Group, the applicable Targeted Overcollateralization Amount for such Mortgage Loan Group will not be reduced to less than the applicable Targeted Overcollateralization Amount in effect on the Distribution Date preceding the occurrence of such Trigger Event. Targeted Overcollateralization Loss Event: With respect to any Distribution Date during the indicated period and the Fixed Rate Group, means that the related Loss Percentage equals or exceeds the indicated Loss Percentage.
Period Loss Percentage ------ --------------- Through September 2001 2.50% October 2001 - September 2002 3.00% October 2002 - September 2003 3.50% October 2003 - September 2004 3.75% October 2004 and thereafter 4.00%
Targeted Stepdown Percentage: With respect to the Adjustable Rate Group and any Distribution Date prior to the occurrence of a Cumulative Loss Event means 6.00% and upon the occurrence and continuance of a Cumulative Loss Event means 10.20%. 35 41 Transfer Affidavit: The affidavit to be delivered by any transferee of an interest in a Class R Certificate pursuant to Section 6.02(b), to be substantially in the form attached hereto as Exhibit D. Transferor Affidavit: The affidavit to be delivered by any transferor of an interest in a Class R Certificate pursuant to Section 6.02(c), to be substantially in the form attached hereto as Exhibit H. Trigger Event: With respect to either Mortgage Loan Group and any Distribution Date means (a) on such Distribution Date the Rolling Delinquency Percentage equals or exceeds 50% of the Senior Enhancement Percentage in the case of the Fixed Rate Group, or 40% of the Senior Enhancement Percentage for the Adjustable Rate Group or (b) the occurrence and continuance of a Targeted Overcollateralization Loss Event with respect to the Fixed Rate Group; notwithstanding the foregoing, with respect to clause (a) a Trigger Event will not be in effect on any Distribution Date as to which the related Class A Certificates (stated as a percentage of the outstanding Principal Balances of such Mortgage Loan Group) is less than or equal to the related Stepped Up Enhancement Percentage after all distributions thereon in respect of principal. Trust: The trust created by this Agreement and the corpus thereof, which consists of, to the extent described herein, the Mortgage Loans, such assets as shall from time to time be identified or shall be required by this Agreement to be deposited in the Collection Account or the Certificate Account or invested in Permitted Investments in accordance with this Agreement, all rights under any insurance policy covering a Mortgage Loan or the related Mortgaged Property and property and any proceeds thereof that secured a Mortgage Loan and that has been acquired by foreclosure, deed in lieu of foreclosure or by a comparable conversion. Trust Insurance Proceeds: Insurance Proceeds that (a) are applied by the Servicer to reduce the Principal Balance of the related Mortgage Loan and (b) not applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with the Servicer's normal servicing procedures or the terms of the related Mortgage Loan. Trust Parties: As defined in Section 5.04. Trustee: Bankers Trust Company of California, N.A., a national banking association, and its successors in interest or any successor trustee appointed as provided pursuant to this Agreement. Trustee Fee: The annual fee of the Trustee, which shall be $5,000, and any annual file access fees, such fees being payable by the Servicer pursuant to Section 9.05. Unpaid Realized Loss Amount: With respect to any Class of the Subordinate Certificates and as to any Distribution Date means, the excess of (x) the aggregate cumulative amount of related Applied Realized Loss Amounts with respect to such Class for all prior Distribution Dates over (y) the aggregate cumulative amount of related Realized Loss Amortization Amounts with respect to such Class for all prior Distribution Dates. 36 42 Vice President: Any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Voting Interest: With respect to any provisions hereof providing for the action, consent or approval of the Holders of all Certificates evidencing specified Voting Interests in the Trust, the Holders of the Offered Certificates will collectively be entitled to 100% of the aggregate Voting Interests represented by all Certificates. Voting Interests will be allocated to the Certificateholders of each Class pro rata, based on the respective Certificate Principal Balances thereof. Each Certificateholder of a Class will have a Voting Interest equal to the product of the Voting Interest to which such Class is collectively entitled and the Percentage Interest in such Class represented by such Holder's Certificates. With respect to any provision hereof providing for action, consent or approval of each Class of Certificates or specified Classes of Certificates, each Certificateholder of a Class will have a Voting Interest in such Class equal to such Holder's Percentage Interest in such Class. Section 1.02. Interest Calculations. All calculations of interest at the Mortgage Loan Rate that are made in respect of the Principal Balance of a Mortgage Loan, shall be made on a daily basis using a 360-day year of twelve 30-day months. All calculations of interest on the Fixed Rate Group Certificates will be computed on the basis of a 360-day year of twelve 30-day months. All calculations of interest on the Adjustable Rate Group Certificates will be computed on the basis of the actual number of days elapsed in the related Interest Period and a year of 360 days. ARTICLE TWO CONVEYANCE OF THE TRUST; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. Conveyance of the Trust. The Seller, concurrently with the execution and delivery of this Agreement, does hereby irrevocably sell, transfer, assign, set over and otherwise convey to the Trustee, in trust for the benefit of the Certificateholders, without recourse (except as otherwise explicitly provided for herein), all of its right, title and interest in and to the Trust, including specifically, without limitation, the Mortgage Loans, the Mortgages, the Mortgage Files and the Mortgage Notes, including all interest and principal (whether in the form of payments by Mortgagors or other proceeds) received or deemed to be received by the Seller on or with respect to the Mortgage Loans on or after the Cut-off Date net of amounts in respect of interest accrued on the Mortgage Loans in periods prior to the Cut-off Date (whether in the nature of amounts held by the Seller for application on behalf of the related Mortgagor as a Monthly Mortgage Payment that is due on any date on or after the Cut-off Date or otherwise), together with all of its right, title and interest in and to the proceeds received on or after the Cut-off Date of any related insurance policies. In addition, on or prior to the Closing Date the Seller shall deposit the Closing Date Deposit in the Collection Account. In the event that, notwithstanding the intent of the parties hereto to effect a sale and assignment of the Trust by the Seller to the Trustee, such sale and assignment is deemed to constitute a pledge of security for a loan, it is the intent of this Agreement that the Seller shall be deemed to 37 43 have granted to the Trustee for the benefit of the Certificateholders a first priority perfected security interest in all of the Seller's right, title and interest in and to the Mortgage Loans, the Mortgages, the Mortgage Files and the Mortgage Notes, all payments of principal or interest on the Mortgage Loans received on or after the Cut-off Date net of amounts in respect of interest accrued on the Mortgage Loans in periods prior to the Cut-off Date, all other payments (exclusive of assumption fees, late payment charges, charges for checks returned for insufficient funds, prepayment fees, if any, and extension and other administrative charges) made in respect of such Mortgage Loans on or after the Cut-off Date and all proceeds of any thereof, including all amounts on deposit in the Certificate Account and the Collection Account, and amounts invested in Permitted Investments, and that this Agreement shall constitute a security agreement under applicable law. The Company confirms to the Trustee that it has caused its computer records relating to the Mortgage Loans to indicate by a code that the Mortgage Loans have been sold to the Trustee on behalf of the Trust and constitute part of the Trust in accordance with the terms of the Trust and that the Company will treat the transaction contemplated by such sale and assignment as a sale in accordance with generally accepted accounting principles and will reflect such sale on its primary accounting records. In connection with such sale and assignment, the Company, in its capacity as Seller hereunder, does hereby deliver to, and deposit with, the Trustee the originals of the following documents or instruments with respect to each Mortgage Loan so assigned: (a) The original Mortgage Note, with all intervening endorsements sufficient to show a complete chain of endorsement to the Seller, endorsed (which endorsement may be by manual or facsimile signature) by the Seller without recourse to the order of the Trustee in the following form: "Pay to the order of Bankers Trust Company of California, N.A., in trust for the benefit of holders of Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C, without recourse"; except that with respect to 3 Mortgage Loans identified to the Trustee by loan number, an original lost note affidavit has been supplied in lieu of the original Mortgage Note; (b) The original Mortgage with evidence of recording indicated thereon; (c) The original executed assignment of the Mortgage in recordable form; (d) Originals of all assumption, modification and substitution agreements in those instances where the terms or provisions of a Mortgage or Mortgage Note have been modified or such Mortgage or Mortgage Note has been assumed; (e) Originals of all intervening mortgage assignments with evidence of recording indicated thereon sufficient to show a complete chain of assignment from the originator of the Mortgage Loan to the Seller or one of its Affiliates; and (f) Original lender's title insurance policy issued on the date of the origination of such Mortgage Loan. 38 44 As promptly as practicable subsequent to the Closing Date, and in any event, within 30 days thereafter, the Company, in its capacity as Servicer shall (i) affix the Trustee's name to each assignment of Mortgage, as the assignee thereof, (ii) cause such assignment to be in proper form for recording in the appropriate public office for real property records, and (iii) cause to be delivered for recording in the appropriate public office for real property records the assignments of the Mortgages to the Trustee, except that, with respect to any assignments of Mortgage as to which the Servicer has not received the information required to prepare such assignment in recordable form, the Servicer shall be obligated to prepare and to deliver such assignment for such recording as soon as practicable after receipt of such information and in any event within 30 days after receipt thereof (and in no event more than one year after the Closing Date) and that the Servicer need not cause to be recorded any assignment that relates to a Mortgage Loan in any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel delivered by the Seller (at the Seller's expense) to the Trustee, the recordation of such assignment is not necessary to protect the Trustee's and the Certificateholders' interest in the related Mortgage Loan. If the Company cannot deliver the original Mortgage or any intervening mortgage assignment to the benefit of the Seller or one of its affiliates with evidence of recording thereon concurrently with the execution and delivery of this Agreement solely because of a delay caused by the public recording office where such original Mortgage or mortgage assignment has been delivered for recordation, the Company shall deliver to the Trustee an Officer's Certificate, with a photocopy of such Mortgage or mortgage assignment, as the case may be, attached thereto, stating that such original Mortgage or mortgage assignment has been delivered to the appropriate public recording official for recordation. The Company shall promptly deliver to the Trustee any such original Mortgage or intervening mortgage assignment with evidence of recording indicated thereon upon receipt thereof from the public recording official. If the Company within six months from the Closing Date shall not have received such original Mortgage or intervening mortgage assignment from the public recording official, it shall obtain, and deliver to the Trustee within eight months from the Closing Date, a copy of such original Mortgage or mortgage assignment certified by such public recording official to be a true and complete copy of such original Mortgage or mortgage assignment as recorded by such public recording office. The costs relating to the delivery of the documents specified in this Section shall be borne by the Seller. Section 2.02. [Reserved.] Section 2.03. Acceptance by the Trustee; Repurchase or Substitution of Mortgage Loans. The Trustee acknowledges the sale and assignment to the Trust and receipt by it of the original Mortgage Notes, Assignments and Mortgages pursuant to this Agreement and the delivery to it, subject to (i) the provisions of the penultimate paragraph of Section 2.01, (ii) the review provided for in this Section of the documents referred to in clauses (a) through (f) of Section 2.01 and (iii) delivery of the Officer's Certificates pursuant to Section 2.01, declares that it will hold the Trust in trust upon the terms herein set forth for the use and benefit of all present and future Certificateholders. The Trustee agrees, for the benefit of Certificateholders, to review each Mortgage File within 45 days after the Closing Date to determine whether the documents described 39 45 in Section 2.01(a)-(c), (e) and (f) have been executed and received, and whether such documents relate to the Mortgage Loans identified in the Mortgage Loan Schedule, and in so doing the Trustee may rely on the purported due execution and genuineness of any such document and on the purported genuineness of any signature thereon. If within such 45-day period the Trustee finds any document constituting a part of a Mortgage File not to have been executed or received or to be unrelated to the Mortgage Loans identified in the Mortgage Loan Schedule, the Trustee shall promptly notify the Seller of such findings. The Seller shall have a period of 60 days from the date of such notice to correct or cure any such defect. Notwithstanding the second paragraph of Section 9.01, the Trustee shall be under no duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable, or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. If the Trustee has notified the Seller of a defect in a Mortgage File that materially and adversely affects the interests of the Certificateholders in the related Mortgage Loan, and such defect remains uncured after such 60-day period, the Seller shall, (i) in the case of a defect consisting solely of the failure of the Company to deliver the original Mortgage or any intervening mortgage assignment with evidence of recording thereon for reasons set forth in Section 2.01, on the first Deposit Date occurring after the expiration of eight months from the Closing Date, and (ii) in the case of all other defects (and in any case that the Servicer at any time becomes aware or the Trustee has actual knowledge that a lost note affidavit is fraudulent or will not be enforceable), on the Deposit Date occurring not later than 60 days after receipt of notice of such defect (or the Servicer becomes aware of or the Trustee comes to have actual knowledge of such defect and gives notice thereof to the Servicer) as the case may be, either (I) repurchase the related Mortgage Loan (including any property acquired in respect thereof and any insurance policy or current or future insurance proceeds with respect thereto) from the Trust at a price equal to the Purchase Price, which shall be accomplished by deposit of monies by the Seller in the Certificate Account on such Deposit Date, or (II) substitute one or more Qualified Replacement Mortgage Loan for the related Mortgage Loan. Upon receipt by the Trustee of an Officer's Certificate of the Servicer to the effect that the Purchase Price for a Defective Mortgage Loan (other than a Defective Mortgage Loan that is a Deleted Mortgage Loan) has been deposited in the Certificate Account, and upon confirmation by the Trustee that such Purchase Price has been received by it, the Trustee shall execute and deliver such instrument of transfer or assignment presented to it by the Seller, in each case without recourse, as shall be necessary to vest in the Seller legal and beneficial ownership of such repurchased Defective Mortgage Loan (including any property acquired in respect thereof or insurance policy or current or future insurance proceeds with respect thereto). Payments received with respect to Qualified Replacement Mortgage Loans in the Collection Period prior to the Deposit Date on which such substitution occurs will not be part of the Trust and will be retained by the Seller. For the Distribution Date following the Deposit Date on which such substitution occurs, distributions to Certificateholders will reflect the payments received on such Deleted Mortgage Loan in the related Collection Period representing amounts due or accrued thereon prior to such Deposit Date, and the Seller shall thereafter be entitled to retain all amounts 40 46 subsequently received in respect of such Deleted Mortgage Loan. In the case of a Qualified Replacement Mortgage Loan, the Mortgage File relating thereto shall be delivered to the Trustee and the amount, if any, by which the Principal Balance of the related Deleted Mortgage Loan as of the related Deposit Date exceeds the Principal Balance of the Qualified Replacement Mortgage Loan as of the first day of the related Collection Period shall be remitted by the Seller to the Trustee for deposit in the Certificate Account on the Deposit Date on which the substitution occurs. For purposes of this Agreement, any such amount so deposited in the Certificate Account shall be deemed a prepayment of the related Deleted Mortgage Loan received by the Servicer as of the prior Determination Date. Upon receipt by the Trustee of an Officer's Certificate certifying that the Qualified Replacement Mortgage Loan conforms to the requirements of this Agreement and (a) written notification of such deposit signed by a Servicing Officer and (b) the new Mortgage File (containing all of the documents referred to in clauses (a), (b), (c), (d), (e) and (f) of Section 2.01), the Trustee shall release or cause to be released to the Seller the Mortgage File related to the Deleted Mortgage Loan or property and shall execute and deliver or cause to be executed and delivered such instrument of transfer or assignment presented to it by the Seller, without recourse, as shall be necessary to vest in the Seller all of the legal and beneficial ownership of such Deleted Mortgage Loan or property and the Trustee shall have no further responsibility with respect to said Mortgage File. It is understood and agreed that the obligation of the Seller to substitute a Qualified Replacement Mortgage Loan for or repurchase any Defective Mortgage Loan (or any property acquired in respect thereof or insurance policy or current or future insurance proceeds with respect thereto) shall constitute the sole remedy against it respecting such defect available to the Certificateholders or the Trustee, and such obligation on the part of the Seller shall survive any resignation or termination of the Company as Servicer under this Agreement. Notwithstanding the foregoing, a substitution by the Seller for a defect in a constituent document will not be made unless the Trustee receives an Officer's Certificate certifying that the Qualified Replacement Mortgage Loan conforms to the requirements of this Agreement and an Opinion of Counsel that such substitution will not be a "prohibited transaction" as defined in Section 860F(a)(2) of the Code. Any substitution must be effected not later than two years after the Closing Date, or within such longer period of time as may be permitted under the REMIC Provisions for substitution of mortgage loans. On or prior to December 31, 1997, the Trustee shall certify to the Servicer that it has received all of the documents referred to in clauses (a) (b), (c), (e) and (f) of Section 2.01 and that all corrections or curative actions required to be taken by the Seller within the 60-day period referred to in the first paragraph of this Section have been completed or effected, or the related Mortgage Loans have been repurchased or substituted, in accordance with the provisions of this Section or, if any deficiencies in the Mortgage Files or other omissions of the Seller with respect to the Mortgage Files are known to the Trustee at the time of such certification, the Trustee shall make such certification only with respect to those Mortgage Loans as to which no such defects or omissions are known, and shall qualify such certification with respect to the remaining Mortgage Loans, identifying the related defects or omissions. Thereafter, the Trustee shall provide the Seller and the Servicer with monthly exception reports indicating the status of any exceptions until all such exceptions have been eliminated. Such monthly exception reports shall be distributed by the Trustee on the related Distribution Date with the Statement to Certificateholders. 41 47 Section 2.04. Representations and Warranties Regarding the Servicer and the Seller. The Company, as Seller and Servicer hereby represents and warrants to the Trustee and the Certificateholders that, as of the Closing Date: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company is in compliance with the laws of each state in which it is acting as Servicer with respect to a Mortgage Loan to the extent necessary to perform all servicing obligations with respect to the related Mortgaged Property hereunder. Each Sub-Servicer is in compliance with the laws of each state where the Mortgaged Properties under the applicable Sub-Servicing Agreement are located to the extent necessary to perform the servicing obligations hereunder; the Company has the power and authority to execute and deliver this Agreement and to perform its obligations in accordance herewith; the execution, delivery and performance of this Agreement (including all instruments of transfer to be delivered pursuant to this Agreement) by the Company and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action; this Agreement evidences the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity; and the consummation of the transactions contemplated hereby will not result in the breach of any terms or provisions of the articles of incorporation or by-laws of the Company or result in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any material agreement, indenture or loan or credit agreement or other material instrument to which the Company or its property is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Company or its property is subject. Each Sub-Servicer has all requisite corporate power and authority to conduct its business and perform the obligations under the Sub-Servicing Agreement to which such Sub- Servicer is a party; (ii) All actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any federal, state or other governmental authority or agency, that are necessary in connection with the execution and delivery by the Company of this Agreement, have been duly taken, given or obtained, as the case may be, are in full force and effect, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and either the time within which any appeal therefrom may be taken or review thereof may be obtained has expired or no review thereof may be obtained or appeal therefrom taken, and are adequate to authorize the consummation of the transactions contemplated by this Agreement on the part of the Company and the performance by the Company of its obligations as Servicer under this Agreement; (iii) There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against the Company that, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, 42 48 financial condition, properties or assets of the Company or in any material impairment of the right or ability of the Company to carry on its business substantially as now conducted, or in any material liability on the part of the Company or that would draw into question the validity of this Agreement or the Mortgage Loans or of any action taken or to be taken in connection with the obligations of the Company, in its capacity as Servicer, contemplated herein, or that would be likely to impair the ability of the Company to perform under the terms of this Agreement; (iv) The Company is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Company or its properties or might have consequences that would adversely affect its performance as Servicer hereunder; (v) The transfer, assignment and conveyance of the Mortgage Loans by the Company, as Seller, pursuant to this Agreement are not subject to the bulk transfer laws or any similar statutory provisions in effect in any applicable jurisdiction; (vi) The collection practices used by the Company and any Sub-Servicer are in all material respects legal, proper, prudent and customary in the home equity mortgage loan servicing business; and (vii) Each Sub-Servicer engaged by the Servicer has obtained all licenses and approvals required under state or federal law to service the Mortgage Loans specified in the Sub-Servicing Agreement to which the Sub-Servicer is a party. The representations and warranties set forth in this Section shall survive the sale and assignment of the Mortgage Loans to the Trust and the issuance, sale and delivery of the Certificates. Upon discovery of a breach of any of the foregoing representations and warranties that materially and adversely affects the interests of the Certificateholders, the party discovering such breach shall give prompt written notice to the other parties. Within 60 days of its discovery or its receipt of notice of breach, the Company shall cure such breach in all material respects. Section 2.05. Representations and Warranties of the Seller Regarding the Mortgage Loans. The Seller represents and warrants to the Trustee and the Certificateholders as of the Closing Date, except as otherwise stated, that as to each Mortgage Loan conveyed to the Trust by it: (i) The information with respect to each Mortgage Loan set forth in the Mortgage Loan Schedule is true and correct as of the Cut-off Date; (ii) All of the original or certified documentation set forth in Section 2.01 (including all material documents related thereto), with respect to each Mortgage Loan has been or will be delivered to the Trustee on the Closing Date or as otherwise provided in Section 2.01, as applicable; 43 49 (iii) The related Mortgaged Property is improved by a one- to four-family residential dwelling owned by the related Mortgagor in fee simple, which may include condominiums, townhouses and manufactured housing or modular homes that are permanently affixed to the land and constitute real property under the laws of the state in which the Mortgaged Property is located but shall not include co-operatives or mobile homes; (iv) As of the Cut-off Date no Mortgage Loan included in the Fixed Rate Group has a Combined Loan-to-Value Ratio in excess of 90% and no Mortgage Loan included in the Adjustable Rate Group has a Loan-to-Value Ratio in excess of 90%, except that five Mortgage Loans representing not more than 0.17% of the initial Fixed Rate Group Balance have Combined Loan-to-Value Ratios of up to 95%, and four Mortgage Loans representing not more than 0.12%, and one Mortgage Loan representing not more than 0.04%, respectively, of the initial Adjustable Rate Group Balance have Combined Loan-to-Value Ratios of up to 95% and 100%; (v) Each Mortgage Loan was originated by an Affiliate of the Company or by an originator not affiliated with the Company authorized to originate such Mortgage Loan and is being serviced by the Company; (vi) Each Mortgage Loan included in the Fixed Rate Group as of the Cut-off Date bears a fixed Mortgage Loan Rate of at least 7.75% per annum and each Mortgage Loan included in the Adjustable Rate Group as of the Cut-off Date is an Adjustable Rate Mortgage Loan that has a Minimum Rate of not less than 3.00% per annum and a Mortgage Loan Rate as of the Cut-off Date of not less than 5.00% per annum; the terms of each Mortgage Loan included in the Adjustable Rate Group require that adjustments in the related Mortgage Loan Rate be made employing the related Index measured as of a date not more than three months prior to the related adjustment date; (vii) Each Mortgage Note provides for a schedule of substantially level and equal Monthly Mortgage Payments (subject, in the case of an Adjustable Rate Mortgage Loan, to periodic adjustments relating to changes in the Mortgage Loan Rate) that are sufficient to amortize fully the principal balance of such Mortgage Note on or before its maturity date, except that, Mortgage Notes with respect to Mortgage Loans in the Fixed Rate Group representing not more than 8.43% of the initial Fixed Rate Group Balance and Mortgage Notes with respect to Mortgage Loans in the Adjustable Rate Group representing not more than 0.13% of the initial Adjustable Rate Group Balance, provide for level and equal Monthly Mortgage Payments that are sufficient to amortize fully the principal balances of such Notes over a period not exceeding 30 years, with "balloon" payments at stated maturity that are substantially in excess of the Monthly Mortgage Payments; (viii) Each Mortgage is a valid and subsisting lien of record on the Mortgaged Property having the priority indicated on the Mortgage Loan Schedule, subject, in the case of any Junior Mortgage Loan, only to any Senior Lien or Senior Liens on such Mortgaged Property and subject in all cases to the exceptions to title set forth in the title insurance policy 44 50 with respect to the related Mortgage Loan, which exceptions are generally acceptable to home equity mortgage lending institutions, and such other exceptions to which similar properties are commonly subject and that do not individually, or in the aggregate, materially and adversely affect the benefits of the security intended to be provided by such Mortgage; (ix) Immediately prior to the sale, transfer and assignment herein contemplated, the Company held good and indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed by the Company subject to no liens, charges, mortgages, encumbrances or rights of others, except with respect to liens that will be released simultaneously with such transfer and assignment; and immediately upon the transfer and assignment herein contemplated, the Trustee will hold good and indefeasible title to, and be the sole owner of, each Mortgage Loan subject to no liens, charges, mortgages, encumbrances or rights of others; (x) The Mortgage Loan Rate for each Adjustable Rate Mortgage Loan will be adjustable on each related Adjustment Date and will equal the sum, rounded upward to the nearest three decimal places, of the Index plus the related Gross Margin, subject to any related Minimum Rates, Maximum Rates or any limitations or periodic adjustments, in each case as specified in the related Mortgage Loan Schedule. No Adjustable Rate Mortgage Loan is subject to negative amortization. The Mortgage Notes relating to not more than 60% of the Mortgage Loans in the Adjustable Rate Group, by initial Adjustable Rate Group Balance or by the Adjustable Rate Group Balance as of the Closing Date, provide for initial Adjustment Dates that are more than one year and less than three years from the Cut-off Date; (xi) With respect to any Adjustable Rate Mortgage Loan, no mortgage document in the Mortgage File contains any provision permitting or requiring conversion of the Mortgage Loan to a fixed interest rate nor is the Mortgage Loan Rate conditioned upon Mortgagor maintaining accounts with Seller; (xii) As of the Cut-off Date (a) no Mortgage Loan had two or more Monthly Mortgage Payments past due and not more than 0.90% of the Mortgage Loans (by Cut-off Date Principal Balance) had one or more Monthly Payments past due, (b) no Mortgage Loan has been 60 or more days contractually delinquent more than once during the 12-month period immediately preceding the Cut-off Date and (c) no Mortgage Loan has been 90 or more days delinquent in the 12 months preceding the Cut-off Date; (xiii) As of the Cut-off Date, there is no delinquent tax or assessment lien on any Mortgaged Property, and, to the best knowledge of the Company, each Mortgaged Property is free of substantial damage and is in good repair and is not affected by hazardous or toxic wastes or substances; (xiv) There is no offset, right of rescission, counterclaim or defense, including the defense of usury, with respect to any Mortgage Note or Mortgage, nor will the operation of any of the terms of the Mortgage Note or the Mortgage, or the exercise of any right 45 51 thereunder, render either the Mortgage Note or the Mortgage unenforceable in whole or in part, or subject to any right to rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto; (xv) As of the Cut-off Date, there is no mechanic's lien or claim for work, labor or material affecting any Mortgaged Property that is or may be a lien prior to, or equal to or on a parity with, the lien of the related Mortgage except those that are insured against by any title insurance policy referred to in paragraph (xvii) below; (xvi) To the best of the Seller's knowledge, each Mortgage Loan at the time it was made complied in all material respects with applicable local, state and federal laws and regulations, including, without limitation, the federal Truth-in-Lending Act and other consumer protection laws, real estate settlement procedure, usury, equal credit opportunity, disclosure and recording laws; (xvii) With respect to each Mortgage Loan, a lender's title insurance policy (issued in standard form by a title insurance company authorized to transact business in the state where the related Mortgaged Property is located), in an amount at least equal to the Original Principal Amount of such Mortgage Loan insuring the mortgagee's interest under the related Mortgage Loan as the holder of a valid lien of record on the real property described in the related Mortgage (subject only to exceptions of the character referred to in paragraph (viii) above), was effective on the date of the origination of such Mortgage Loan, and, as of the Closing Date, such policy is in full force and effect and thereafter such policy shall continue in full force and effect and shall inure to the benefit of the Certificateholders upon consummation of the transactions contemplated by this Agreement; (xviii) As of the Cut-off Date, either (a) the improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy (which may be a blanket policy) with a generally acceptable carrier that provides for fire and extended coverage representing coverage not less than the least of (a) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Junior Mortgage Loan, with the outstanding principal balance of the Senior Lien), (b) the minimum amount required to compensate for damage or loss on a replacement cost basis or (c) the full insurable value of the Mortgaged Property or (b) in the case of a Junior Mortgage Loan, a policy has been issued by a generally acceptable carrier that will cover the full Principal Balance of such Junior Mortgage Loan in the event of a loss covered by a hazard typically insured against by the type of policy referred to in clause (xviii)(a); (xix) If any Mortgaged Property is in an area identified in the Federal Register by FEMA as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Federal Insurance Administration, if obtainable with respect to such Mortgaged Property, is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in 46 52 the case of a Junior Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (xx) Each Mortgage and Mortgage Note is the legal, valid and binding obligation of the maker thereof and is enforceable in accordance with its terms, except only as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law), and all parties to each Mortgage Loan had full legal capacity to execute all documents relating to such Mortgage Loan and convey the estate therein purported to be conveyed; with respect to each Mortgage Loan, only one original Mortgage Note exists; (xxi) The Seller has caused and will cause to be performed any and all acts required to be performed to preserve the rights and remedies of the Trustee in any insurance policies applicable to each Mortgage Loan, including any necessary notifications of insurers, assignments of policies or interests therein, and establishment of co-insured, joint loss payee and mortgagee rights in favor of the Trustee; (xxii) As of the Cut-off Date no more than 0.39% of the initial Fixed Rate Group Balance is secured by Mortgaged Properties located within any single zip code area and no more than 0.29% of the initial Adjustable Rate Group Balance is secured by Mortgaged Properties located within any single zip code area; (xxiii) Each original Mortgage has been recorded or is in the process of being recorded, and all subsequent assignments of the original Mortgage (other than the assignment from the Seller to the Trustee and any assignment to the Seller or an affiliate thereof) have been recorded in the appropriate jurisdictions as to which no Opinion of Counsel was delivered pursuant to Section 2.01 or 2.02, as applicable, or such Mortgages and assignments are in the process of being recorded); (xxiv) The terms of each Mortgage Note and each Mortgage have not been impaired, altered or modified in any respect, except by a written instrument that has been recorded, if necessary, to protect the interest of the Certificateholders and that has been delivered to the Trustee. The substance of any such alteration or modification is reflected on the Mortgage Loan Schedule and has been approved by the primary mortgage guaranty insurer, if any; (xxv) The proceeds of each Mortgage Loan have been fully disbursed, and there is no obligation on the part of the mortgagee to make future advances thereunder. Any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing or recording such Mortgage Loans were paid; 47 53 (xxvi) No Mortgage Note is or has been secured by any collateral, pledged account or other security other than the lien of the corresponding Mortgage; (xxvii) No Mortgage Loan was originated under a buydown plan; (xxviii) No Mortgage Loan has a shared appreciation feature or other contingent interest feature; (xxix) Each Mortgaged Property consists of one or more contiguous parcels of real property with a residential dwelling erected thereon; (xxx) Each Mortgage Loan contains a provision for the acceleration of the payment of the unpaid principal balance of such Mortgage Loan in the event the related Mortgaged Property is sold without the prior consent of the mortgagee thereunder; (xxxi) Any advances made to the Mortgagor after the date of origination of a Mortgage Loan but prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the related Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the Mortgage Loan Schedule. The consolidated principal amount as of the Cut-off Date does not exceed the original principal amount of the related Mortgage Loan and is reflected as the current principal amount of such Mortgage Loan on the Mortgage Loan Schedule; (xxxii) To the best knowledge of the Seller, there is no proceeding pending or threatened for the total or partial condemnation of any Mortgaged Property, nor is such a proceeding currently occurring; (xxxiii) To the best knowledge of the Seller, all of the improvements that were included for the purposes of determining the Appraised Value of any Mortgaged Property lie wholly within the boundaries and building restriction lines of such Mortgaged Property, and no improvements on adjoining properties encroach upon such Mortgaged Property except those that are identified in the related title insurance policy and affirmatively insured; (xxxiv) To the best knowledge of the Seller, no improvement located on or being part of any Mortgaged Property is in violation of any applicable zoning law or regulation, all inspections, licenses and certificates required to be made or issued with respect to all occupied portions of each Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and such Mortgaged Property is lawfully occupied under applicable law; (xxxv) With respect to each Mortgage that is a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in such Mortgage, and no fees or expenses are or will become payable by the 48 54 Certificateholders or the Trust to any trustee under any deed of trust, except in connection with a trustee's sale after default by the related Mortgagor; (xxxvi) With respect to each Junior Mortgage Loan, either (A) no consent for such Mortgage Loan was required by the holder of the related Senior Lien prior to the making of such Mortgage Loan or (B) such consent has been obtained and is contained in the related Mortgage File; (xxxvii) Each Mortgage contains customary and enforceable provisions that render the rights and remedies of the holder thereof adequate for the realization against the related Mortgaged Property of the benefits of the security, including by trustee's sale and by judicial foreclosure and there is no homestead or other exemption available to the related Mortgagor that would materially interfere with the right to sell the related Mortgaged Property at a trustee's sale or the right to foreclose upon the related Mortgaged Property; (xxxviii) There is no default, breach, violation or event of acceleration existing under any Mortgage or the related Note and no event that, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; and the Seller has not waived any default, breach violation or event of acceleration; (xil) No instrument of release or waiver has been executed in connection with any Mortgage Loan, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement that has been approved by the primary mortgage guaranty insurer, if any, and that has been delivered to the Trustee; (xl) The maturity date of each Junior Mortgage Loan is at least 12 months prior to the maturity date of the related Senior Lien if such Senior Lien provides for a balloon payment; (xli) At least 96.58% of the Mortgage Loans in the Fixed Rate Group (by initial Fixed Rate Group Balance) and at least 94.69% of the Mortgage Loans in the Adjustable Rate Group (by initial Adjustable Rate Group Balance) are secured by Mortgaged Properties that are maintained by the related Mortgagors as primary residences; (xlii) There are no defaults (other than delinquencies) in complying with the terms of the Mortgage, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents that previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item that remains unpaid; the Company has not advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Mortgagor, directly or indirectly, for the payment of any amount required by the Mortgage, other than interest accruing from the date of the Mortgage Note or date of disbursement of the Mortgage proceeds, whichever is greater, to the date that precedes by one month the due date of the first installment of principal and interest; 49 55 (xliii) To the best of the Seller's knowledge, all parties that have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise during the period in which they held and disposed of such interest, were and either are now or, in the case of subclause (1) of this clause (xliii), will be within 30 days of the Closing Date, (1) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (2) (A) organized under the laws of such state, or (B) qualified to do business in such state, or (C) federal savings and loan associations or national banks having principal offices in such state, or (D) not doing business in such state so as to require qualification or licensing; (xliv) No Mortgage Loan was selected by the Seller for inclusion in the Trust on any basis intended to adversely affect the Trust; (xlv) A full appraisal of each Mortgaged Property was performed in connection with the origination of the related Mortgage Loan, and such appraisal is the appraisal referred to in determining the Appraised Value of such Mortgaged Property; (xlvi) With respect to each Junior Mortgage Loan, the related Senior Lien requires equal monthly payments or, if such Senior Lien bears an adjustable interest rate, the monthly payments for such Senior Lien may be adjusted no more frequently than monthly; (xlvii) With respect to any Junior Mortgage Loan with a related Senior Lien that provides for negative amortization or an open-end feature that permits additional borrowings, the balance of such Senior Lien reflected on the Mortgage Loan Schedule and used to calculate the Combined Loan-to-Value Ratio for such Junior Mortgage Loan is based on the maximum amount of negative amortization, deferred interest or maximum amount of borrowings permitted under such Senior Lien; (xlviii) The Seller has not required the Mortgagor to sign a letter in connection with the origination of any Mortgage Loan in which such Mortgagor indicates its inability to repay such Mortgage Loan in accordance with the terms of the related Mortgage Note; (xlix) Each Adjustable Rate Mortgage Loan was underwritten or re-underwritten as though such Mortgage Loan would initially have borne interest at a rate equal to the lesser of (a) the Index plus the related Gross Margin and (b) for loans that have not reached their first Adjustment Date, the rate currently in effect plus 1.0%, in each case determined at the time such underwriting or reunderwriting was conducted; (l) As of the Cut-off Date, no Mortgage Loan in the Fixed Rate Group or the Adjustable Rate Group was secured by more than one Mortgaged Property; (li) With respect to each Adjustable Rate Mortgage Loan, all of the terms of the Mortgage pertaining to interest rate adjustments, payment adjustments and adjustments of the outstanding principal balance are enforceable; such adjustments will not affect the 50 56 priority of the Mortgage lien and all of the adjustments have been properly calculated, recorded, reported and applied in accordance with the Mortgage and applicable law; (lii) All insurance policies are the valid and binding obligation of the insurer and contain a standard mortgagee clause naming the originator, its successors and assigns, as mortgagee. Such insurance policies require prior notice to the insured of termination or cancellation and no such notice has been received, each Mortgage obligates the Mortgagor thereunder to maintain all such insurance at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor; (liii) None of the Mortgage Loans is subject to a plan of bankruptcy and no Mortgagor has sought protection or relief under any state or federal bankruptcy or insolvency law during the term of the related Mortgage; (liv) Each Mortgage Loan has a Monthly Mortgage Payment due during the first Collection Period commencing after the calendar month during which such Mortgage Loan is included in the Trust; (lv) All Mortgage Loans were underwritten or re-underwritten in accordance with the underwriting guidelines of the Seller; (lvi) As of the Cut-off Date, no Mortgage Loan was secured by a Mortgaged Property upon which is affixed manufactured housing or a modular home; (lvii) Mortgage Loans in the Fixed Rate Group representing not less than 63% of the aggregate Principal Balance thereof were assigned a credit grade of "A-" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Fixed Rate Group representing not less than 20% of the aggregate Principal Balance thereof were assigned a credit grade of "B" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Fixed Rate Group representing not less than 8% of the aggregate Principal Balance thereof were assigned a credit grade of "C" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Fixed Rate Group representing not more than 3% of the aggregate Principal Balance thereof were assigned a credit grade of "C-" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; and Mortgage Loans in the Fixed Rate Group representing not more than 5% of the aggregate Principal Balance thereof were assigned a credit grade of "D" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller. Mortgage Loans in the Adjustable Rate Group representing not less than 57% of the aggregate Principal Balance thereof were assigned a credit grade of "A-" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Adjustable Rate Group representing not less than 23% of the aggregate Principal Balance thereof were assigned a 51 57 credit grade of "B" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Adjustable Rate Group representing not less than 7% of the aggregate Principal Balance thereof were assigned a credit grade of "C" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; Mortgage Loans in the Adjustable Rate Group representing not more than 4% of the aggregate Principal Balance thereof were assigned a credit grade of "C-" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller; and Mortgage Loans in the Adjustable Rate Group representing not more than 9% of the aggregate Principal Balance thereof were assigned a credit grade of "D" by the Seller at the time such Mortgage Loans were originated or acquired, as applicable, by the Seller. Each credit grade so assigned to any Mortgage Loan has been determined in accordance with the Seller's internal credit grading system and not pursuant to any other scale or objective standard. It is understood and agreed that the representations and warranties set forth in this Section shall survive the sale and assignment of the Mortgage Loans to the Trust and the issuance, sale and delivery of the Certificates. Upon discovery by the Seller, the Servicer or a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the Seller as to the facts stated therein, which breach materially and adversely affects the interests of the Certificateholders in the related Mortgage Loan or Mortgage Loans, the party discovering such breach shall give prompt written notice to the other parties hereto and to each of the Rating Agencies. Within 60 days of its discovery or its receipt of notice of such breach, the Seller shall use all reasonable efforts to cure such breach in all material respects. Unless, prior to the expiration of such 60-day period, such breach has been cured in all material respects or otherwise does not exist or continue to exist, the Seller shall, not later than the Deposit Date in the month following the related Collection Period in which any such cure period expired, but in all events within 90 days of the earlier of its discovery or receipt of notice of breach (or at the election of the Seller, an earlier Collection Period), either (I) repurchase such Mortgage Loan (or, in the case of any representation and warranty stated above in terms of minimum or maximum aggregate percentage amounts, repurchase Mortgage Loans such that, after giving effect to such repurchase, the related representation and warranty would be complied with) (including any property acquired in respect thereof and any insurance policy or insurance proceeds with respect thereto) from the Trust in the same manner and subject to the same conditions as set forth in Section 2.03 or (II) remove such Mortgage Loan and substitute in its place a Qualified Replacement Mortgage Loan (or, in the case of any representation and warranty stated above in terms of minimum or maximum aggregate percentage amounts, remove such Mortgage Loans and substitute in their place Qualified Replacement Mortgage Loans such that, after giving effect to such substitution, the related representation and warranty would be complied with) in the same manner and subject to the same conditions as set forth in Section 2.03. Upon making any such repurchase or substitution, the Seller shall be entitled to receive an instrument of assignment or transfer from the Trustee, without recourse to the Trustee, to the same extent as set forth in Section 2.03 with respect to the repurchase of or substitution for Defective Mortgage Loans under that Section. It is understood and agreed that the 52 58 obligation of the Seller to repurchase or substitute any such Defective Mortgage Loan (or property acquired in respect thereof or insurance policy or current or future insurance proceeds with respect thereto) shall constitute the sole remedy against it respecting such breach of the foregoing representations or warranties available to the Certificateholders or the Trustee, as the case may be, and such obligation shall survive any resignation or termination of the Company as Servicer under this Agreement. Notwithstanding the foregoing, a substitution of a Mortgage Loan by the Seller for a breach will not be made unless the Trustee receives an Officer's Certificate certifying that the Qualified Replacement Mortgage Loan conforms to the requirements of this Agreement and an Opinion of Counsel that such substitution will not be a "prohibited transaction" as defined in Section 860F(a)(2) of the Code. Any substitution must be effected not later than two years after the Closing Date, or within such longer period of time as may be permitted under the REMIC Provisions for substitution of mortgage loans. Section 2.06. Execution and Authentication of Certificates. The Trustee shall deliver to or upon the order of the Seller, in exchange for the Mortgage Loans and the other assets comprising the Trust, simultaneously with the sale, assignment and transfer to the Trustee of the Mortgage Loans, Certificates duly executed by the Trustee, on behalf of the Trust, not in its individual capacity but solely as Trustee, and authenticated by the Trustee, pursuant to Section 6.01, in authorized denominations, equaling, 100% of the Percentage Interests in each Class, and collectively evidencing the entire ownership of the Trust. Section 2.07. [Reserved]. Section 2.08. Indemnification of the Trust. The Seller shall indemnify the Trust for any liability incurred thereby as a result of a breach of the representation and warranty set forth in clause (xvi) of Section 2.05. This indemnity obligation shall be in addition to any other obligation the Seller may have in connection with any such breach. ARTICLE THREE ADMINISTRATION AND SERVICING OF MORTGAGE LOANS; CERTIFICATE ACCOUNT Section 3.01. The Servicer and the Sub-Servicers. (a) Acting directly or through one or more Sub-Servicers as provided in Section 3.15, the Servicer, as servicer, shall administer the Mortgage Loans with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to all comparable home equity mortgage loans that it services for itself or others. The duties of the Servicer shall include collecting and posting of all payments, responding to inquiries of Mortgagors or by federal, state or local government authorities with respect to the Mortgage Loans, investigating delinquencies, reporting tax information to Mortgagors in accordance with its customary practices and accounting for collections and furnishing monthly and annual statements to the Trustee with respect to distributions and making Monthly Advances and Servicing Advances pursuant to Section 5.02. The Servicer shall follow its customary standards, policies and procedures in performing its duties as Servicer, to the extent not in conflict with the provisions of 53 59 this Agreement. Notwithstanding the appointment of any Sub-Servicer, the Servicer shall remain liable for the performance of all of the servicing obligations and responsibilities under this Agreement. The Servicer shall maintain all licenses and qualifications necessary to perform the servicing obligations hereunder in the jurisdictions in which it services Mortgage Loans. If the Servicer commences directly to service a material number or principal amount of Mortgage Loans with related Mortgaged Properties located in any other state, the Servicer will use its reasonable efforts promptly to obtain, and thereafter to maintain, all licenses and qualifications necessary to perform its servicing obligations hereunder in each such state. Each Sub-Servicer shall maintain all licenses and qualifications necessary to perform its servicing obligations in the states where the Mortgaged Properties to which the applicable Sub-Servicing Agreement relates are located. The Servicer shall cooperate with the Trustee and furnish to the Trustee such information in its possession as may be necessary or appropriate to enable the Trustee to perform its tax reporting duties hereunder. The Trustee shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. Without limiting the generality of the foregoing, the Servicer (i) shall continue, and is hereby authorized and empowered by the Trustee, to execute and deliver, on behalf of itself, the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the related Mortgaged Properties (ii) may consent to any modification of the terms of any Mortgage Note not expressly prohibited hereby if the effect of any such modification will not be to materially and adversely affect the security afforded by the related Mortgaged Property or to decrease or slow (other than as permitted by Section 3.02(a)(ii)) the timing of receipt of any payments required thereunder and (iii) shall not consent to the placing of a lien senior to or on parity with that of the Mortgage on the related Mortgaged Property. In the event that notwithstanding the provisions of clause (iii) above the Servicer shall consent to the placing of a lien senior to or on a parity with that of the Mortgage on a Mortgaged Property, the Servicer shall purchase on the next Deposit Date such Mortgage Loan (including any property acquired in respect thereof and any insurance policy or insurance proceeds with respect thereto) from the Trust at a price equal to the Purchase Price and deposit such amount in the Certificate Account on such Deposit Date pursuant to Section 3.02. For purposes of this Agreement, any such purchase shall be deemed to be a prepayment of such Mortgage Loan. It is understood and agreed that the obligation of the Servicer to purchase any Mortgage Loan (or property acquired in respect thereof or insurance policy or insurance proceeds with respect thereto) pursuant to the second immediately preceding sentence shall constitute the sole remedy against it respecting such breach available to the Certificateholders or the Trustee and such obligation shall survive any resignation or termination of the consenting Servicer under this Agreement. The Servicer may sue to enforce or collect on any of the Mortgage Loans or any insurance policy covering a Mortgage Loan, in its own name if possible, or on behalf of the Trust. If the Servicer commences a legal proceeding to enforce a Mortgage Loan or any such insurance policy, the Trustee shall thereupon be deemed to have automatically assigned the Mortgage Loan or the rights under such insurance policy to the Servicer for purposes of collection only. If, however, in any suit or legal proceeding for enforcement, it is held that the Servicer may not enforce or collect 54 60 on a Mortgage Loan or any insurance policy covering a Mortgage Loan on the ground that it is not a real party in interest or a holder entitled to enforce such Mortgage Loan or such insurance policy, as the case may be, then the Trustee shall, upon the written request of a Servicing Officer, furnish the Servicer with such powers of attorney and other documents as are necessary or appropriate to enable the Servicer to enforce such Mortgage Loan or insurance policy, as the case may be. The relationship of the Servicer to the Trustee under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent. (b) The parties intend that each REMIC Pool shall constitute a REMIC, and that the affairs of each REMIC Pool shall be conducted so as to qualify it as a REMIC. In furtherance of such intention, the Servicer covenants and agrees that it shall act as agent (and the Servicer is hereby appointed to act as agent) on behalf of each REMIC Pool, and that in such capacity it shall: (a) use its best efforts to conduct the affairs of such REMIC Pool at all times that any Certificates are outstanding so as to maintain the status thereof as a REMIC under the REMIC Provisions; (b) not knowingly or intentionally take any action or omit to take any action that would cause the termination of the REMIC status of any REMIC Pool or that would subject such REMIC Pool to tax, including the modification of a qualified mortgage that would subject such REMIC Pool to tax; (c) exercise reasonable care not to allow such REMIC Pool to receive income from the performance of services or from assets not permitted under the REMIC Provisions to be held by a REMIC; (d) pay the amount of any federal income tax, including, without limitation, prohibited transaction taxes, taxes on net income from foreclosure property, and taxes on certain contributions to a REMIC after the Startup Day, imposed on any REMIC Pool when and as the same shall be due and payable (but such obligation shall not prevent the Servicer or any other appropriate Person from contesting any such tax in appropriate proceedings and shall not prevent the Servicer from withholding or depositing payment of such tax, if permitted by law, pending the outcome of such proceedings); and (e) pay the amount of any and all taxes imposed on any REMIC Pool pursuant to Section 24874 of the California Revenue and Taxation Code. The Servicer shall not be entitled to reimbursement for any taxes paid pursuant to this Section. Section 3.02. Collection of Certain Mortgage Loan Payments; Collection Account and Certificate Account. (a) The Servicer shall, to the extent such procedures shall be consistent with this Agreement, follow such collection procedures as it follows from time to time with respect to home equity mortgage loans in its servicing portfolio that are comparable to the Mortgage Loans; provided that the Servicer shall always at least follow collection procedures that are consistent with or better than standard industry practices. Consistent with the foregoing, the Servicer may in its discretion (i) waive any assumption fees, late payment charges, charges for checks returned for insufficient funds, prepayment fees, if any, or other fees that may be collected in the ordinary course of servicing the Mortgage Loans, (ii) if a Mortgagor is in default or about to be in default because of a Mortgagor's financial condition, arrange with the Mortgagor a schedule for the payment of delinquent payments due on the related Mortgage Loan, or (iii) modify payments of monthly principal and interest on any Mortgage Loan becoming subject to the terms of the Relief Act in accordance with the Servicer's general policies for comparable home equity mortgage loans subject to such Act. 55 61 (b) The Servicer shall establish and maintain, or cause to be established and maintained, one or more Eligible Accounts that in the aggregate are the Collection Account. All amounts held in the Collection Account shall be invested by the depository institution or trust company then maintaining the account at the written direction of the Servicer in Permitted Investments that mature not later than the Deposit Date next succeeding the date of investment. No Permitted Investment shall be sold or disposed of at a gain prior to maturity unless the Servicer has obtained an Opinion of Counsel that such sale or disposition will not cause any REMIC Pool to be subject to the tax on income from prohibited transactions imposed by Code Section 860F(a)(1), or otherwise subject any REMIC Pool to tax or cause any REMIC Pool to fail to qualify as a REMIC. The Servicer shall not retain any cash or investment in the Collection Account for a period in excess of 12 months and cash therein shall be considered transferred to Certificate Account on a first-in, first-out basis. All net income and gain realized from any such investment shall be for the benefit of the Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. Any losses realized in connection with any such investment shall be for the account of the Servicer and the Servicer shall deposit or cause to be deposited the amount of such loss (to the extent not offset by income from other investments) in the Collection Account immediately upon the realization of such loss. (c) Subject to Section 3.02(d), the Servicer shall deposit in the Collection Account each of the following payments on and collections in respect of the Mortgage Loans as soon as practicable, but in no event later than the close of business on the second Business Day after its receipt thereof: (i) all payments in respect of or allocable to interest on the Mortgage Loans (including any net income from REO Properties); (ii) all Principal Payments; (iii) all Payments Ahead; (iv) all Net Liquidation Proceeds; and (v) all Trust Insurance Proceeds (including, for this purpose, any amounts required to be credited by the Servicer pursuant to the last sentence of Section 3.04). The Servicer shall replace all amounts previously withdrawn from the Collection Account and applied by the Servicer towards the payment of a Monthly Advance pursuant to Section 5.02(a) or towards the payment of a Servicing Advance pursuant to Section 5.02(b) by depositing into the Collection Account on or prior to the Deposit Date immediately following such withdrawal an amount equal to the total of all such amounts so applied since the immediately preceding Deposit Date. The foregoing requirements respecting deposits to the Collection Account are exclusive, it being understood that, without limiting the generality of the foregoing, the Servicer need not deposit in the Collection Account amounts representing fees, late payment charges, charges for checks returned for insufficient funds, prepayment fees, if any, or extension or other administrative charges 56 62 paid by Mortgagors or amounts received by the Servicer for the account of Mortgagors for application towards the payment of taxes, insurance premiums, assessments and similar items. The amounts deposited in the Collection Account are subject to withdrawal, from time to time, to make deposits into the Certificate Account pursuant to Section 3.02(e), to pay itself the Monthly Servicing Fee pursuant to Section 3.08 and to make Servicing Advances or to reimburse itself for Servicing Advances, as applicable, in either case in accordance with Section 5.02(b), to make Monthly Advances in accordance with Section 5.02(a) or to reimburse itself for payments of Monthly Advances to the extent of recoveries of interest relating to the Mortgage Loans that were the subject of such Monthly Advances. In addition, if the Servicer deposits in the Collection Account any amount not required to be so deposited or any amount in respect of payments by Mortgagors made by checks subsequently returned for insufficient funds or other reason for non-payment, it may at any time withdraw such amount from the Collection Account, any provision herein to the contrary notwithstanding. (d) Upon such terms as the Rating Agencies may approve, the Servicer may make the deposits to the Collection Account referred to in Section 3.02(c) on a later day than the second Business Day after receipt of the amounts required to be so deposited, which terms and later day shall be specified by the Rating Agencies and confirmed to the Trustee and the Servicer in writing. (e) The Trustee shall establish and maintain the Certificate Account. The Certificate Account shall constitute a trust account segregated on the books of the Trustee and held by the Trustee in trust, and the Certificate Account and the amounts deposited therein shall not be subject to any claim, liens or encumbrances of any creditors or depositors of the Trustee or the Company (whether made directly or indirectly through a liquidator, receiver or trustee in bankruptcy of the Trustee or the Company). At or before 11:00 a.m. Los Angeles time on each Deposit Date, the Servicer shall withdraw from the Collection Account all amounts on deposit therein that constitute any portion of Available Funds for a Mortgage Loan Group and the related Distribution Date (including any amounts therein that are being held for distribution on a subsequent Distribution Date and are applied toward the Monthly Advance for the related Distribution Date pursuant to Section 5.02(a)) and remit such amounts to the Trustee for deposit in the Certificate Account. In addition, any Compensating Interest and Monthly Advances required to be made by the Servicer for the related Mortgage Loan Group in respect of the related Distribution Date and any amounts required to be deposited into the Certificate Account in connection with a purchase or repurchase of any Mortgage Loans or any shortage on Mortgage Loans in such Mortgage Loan Group by the Seller or the Servicer pursuant to Section 2.03, 2.05, 3.01, 3.03, 3.06 or 10.01 or a substitution of a Qualified Replacement Mortgage Loan pursuant to Section 2.03 or 2.05, shall be remitted to the Trustee for deposit in the Certificate Account on the applicable Deposit Date. Any amounts held in the Certificate Account may be invested at the written direction of the Servicer in Permitted Investments upon the same terms and conditions as those specified in clause (b) above with respect to the Collection Account except that such investments shall mature not later than the Distribution Date next succeeding the date of investment, and in the absence of such direction the Trustee shall invest in Permitted Investments described in clause (f) of the definition of Permitted Investments. All net income and gain realized from any such investment shall be for the benefit of the Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. Any losses realized in connection with any such investment shall be for the account of the Servicer 57 63 and the Servicer shall deposit or cause to be deposited the amount of such loss (to the extent not offset by income from other investments) in the Certificate Account immediately upon the realization of such loss. Section 3.03. Additional Servicing Responsibilities for the Adjustable Rate Mortgage Loans. The Servicer shall enforce each Adjustable Rate Mortgage Loan and shall timely calculate, record, report and apply all Mortgage Loan Rate adjustments in accordance with the related Mortgage Note. The Servicer's record shall, at all times, reflect then-current Mortgage Loan Rate and Monthly Mortgage Payment and the Servicer shall timely notify the Mortgagor of any changes to the Mortgage Loan Rate and the Monthly Mortgage Payment. If the Servicer fails to adjust the Mortgage Loan Rate or the Monthly Mortgage Payment in accordance with the terms of the Mortgage Note for the related Adjustable Rate Mortgage Loan, or if the Servicer fails to notify the related Mortgagor of any such adjustment as required under the terms of such Mortgage Note, or if any liability, claim or defense arises with respect to any Adjustable Rate Mortgage Loan solely as a result of any such failure, the Servicer shall pay, from its own funds and without right of reimbursement therefor, any shortage in amounts collected or collectible on the related Adjustable Rate Mortgage Loan that results. The Servicer shall deposit any amounts in respect of such shortage in the Certificate Account on the Deposit Date with respect to the related Collection Period. Section 3.04. Hazard Insurance Policies. The Servicer shall cause to be maintained for each Mortgage Loan (including Mortgage Loans as to which the related Mortgaged Property has been acquired by the Trust upon foreclosure, by deed in lieu of foreclosure or comparable conversion), hazard insurance (including flood insurance coverage, if obtainable, to the extent such property is located in a federally designated flood area in such amount as is required under applicable FEMA guidelines) with extended coverage in an amount that is not less than the least of (i) the maximum insurable value from time to time of the improvements that are a part of such property, or (ii) the combined principal balance of such Mortgage Loan and the principal balance of each mortgage loan senior to such Mortgage Loan at the time of such foreclosure plus accrued interest and the good-faith estimate of the Servicer of related Liquidation Expenses to be incurred in connection therewith; provided, further that such hazard insurance shall be in an amount not less than such amount as is necessary to avoid the application of any coinsurance clause contained in the related hazard insurance policy. Each such hazard insurance policy shall contain a standard mortgagee clause naming the originator, its successors and assigns, as mortgagee and shall require prior notice to the insured of termination or cancellation. The Servicer shall be under no obligation to require that any Mortgagor maintain earthquake or other additional insurance and shall be under no obligation itself to maintain any such additional insurance on property acquired in respect of a Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Amounts collected by the Servicer under any such policies shall be deposited in the Collection Account or Certificate Account, as the case may be, in accordance with Section 3.02 to the extent that they constitute Net Liquidation Proceeds or Trust Insurance Proceeds. If the Servicer shall obtain and maintain a blanket policy, issued by an insurer acceptable to each Rating Agency, insuring against such hazard losses, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section, it being understood and agreed that such policy may contain a deductible clause that is in form and substance consistent with standard industry practice, in which case the Servicer shall, in the event that there shall not have been 58 64 maintained on the related Mortgaged Property a policy complying with the first sentence of this Section, and there shall have been a loss that would have been covered by such policy, deposit in the Collection Account in accordance with Section 3.02 the amount not otherwise payable under the blanket policy because of such deductible clause. Section 3.05. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements. In any case in which property subject to a Mortgage is conveyed by the Mortgagor, the Servicer shall enforce any due-on-sale clause contained in the related Mortgage Note or Mortgage, to the extent permitted by such Mortgage Note or Mortgage, applicable law and governmental regulations, but only to the extent that such enforcement will not adversely affect or jeopardize coverage under any related insurance policy or result in legal action by the Mortgagor the Servicer may take or enter into an assumption and modification agreement from or with the Person to whom such Mortgaged Property has been or is about to be conveyed, pursuant to which such Person becomes liable under the related Mortgage Note and the Mortgagor remains liable thereon or, if the Person to whom such Mortgaged Property has been or is about to be conveyed satisfies the Servicer's then-current underwriting standards for home equity mortgage loans similar to the Mortgage Loans, and the Servicer in its reasonable judgment finds it appropriate, is released from liability thereon. If the Trustee is holding the Mortgage Files, the Servicer shall notify the Trustee that any assumption and modification agreement has been completed by delivering to the Trustee an Officer's Certificate certifying that such agreement is in compliance with this Section and the Servicer shall forward to the Trustee the original of such assumption and modification agreement. Such assumption and modification agreement shall, for all purposes, be considered a part of the related Mortgage File to the same extent as all other documents and instruments constituting a part thereof. In connection with any such agreement, the Mortgage Loan Rate shall not be reduced (but may be increased), the Principal Balance of such Mortgage Loan shall not be changed and the term of such Mortgage Loan will not be extended beyond the existing term of such Mortgage Loan. Any fee collected by the Servicer for entering into any such agreement shall be retained by the Servicer as additional servicing compensation. Notwithstanding the foregoing paragraph of this Section 3.05 or any other provision of this Agreement, the Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reasons of any assumption of a Mortgage Loan, or transfer of any Mortgaged Property without the assumption thereof, by operation of law or any assumption or transfer that the Servicer reasonably believes it may be restricted by law from preventing, for any reason whatsoever. Section 3.06. Realization upon Liquidated Mortgage Loans. Subject to the limitations set forth in this Section 3.06 with respect to Restricted Mortgage Properties, the Servicer, on behalf of the Trust, shall foreclose upon or otherwise comparably convert to ownership Mortgaged Properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.02(a); provided that if the Servicer has actual knowledge or reasonably believes that any Mortgaged Property is affected by hazardous or toxic wastes or substances, then the Servicer shall not cause the Trust to acquire title to such Mortgaged Property in a foreclosure or similar proceeding. In connection with such foreclosure or other conversion, the Servicer shall follow such practices 59 65 (including, in the case of any default on a related Senior Lien, the advancing of funds to correct such default) and procedures as it shall deem necessary or advisable and as shall be normal and usual in its general first, second and third lien one- to four-family mortgage loan servicing activities (including the procurement of a drive-by appraisal of the related Mortgaged Property prior to foreclosure or other conversion). The foregoing is subject to the proviso that neither the Servicer nor the Trustee shall be required to expend its own funds in connection with any foreclosure or towards the correction of any default on a related Senior Lien or restoration of any Mortgaged Property unless, in the reasonable judgment of the Servicer, such foreclosure, correction or restoration will increase Net Liquidation Proceeds (taking into account any unreimbursed Monthly Advances made or expected to be made with respect to such Mortgage Loan). To the extent the Net Liquidation Proceeds derived from any such foreclosure or conversion exceed the unpaid Principal Balance of the related Mortgage Loan and accrued interest thereon at the applicable Mortgage Loan Rate to the related due date during the Collection Period in which such foreclosure or conversion occurs (net of any related Monthly Advances or Servicing Advances that were unreimbursed prior to the receipt of such Net Liquidation Proceeds), such excess shall be paid to the Holder of the Class R Certificate. Neither the Trust nor the Trustee on behalf of the Trust shall complete foreclosure proceedings with respect to any Restricted Mortgage Loan that has not, at any time after the Cut-off Date, been brought current, or take title to any Mortgaged Property securing a Restricted Mortgage Loan (each, a "Restricted Mortgaged Property"), if, as a result of such foreclosure or taking of title, the aggregate value of the Restricted Mortgaged Properties (computed on the basis of the outstanding Principal Balance of such Restricted Mortgage Loan immediately prior to such foreclosure or taking of title) then owned by the Trust or the Trustee on behalf of the Trust would exceed 0.80% of the aggregate of the Principal Balances of the Mortgage Loans as of the preceding Determination Date. If at any time the Trust or the Trustee on behalf of the Trust holds title to Restricted Mortgaged Properties that have an aggregate value (computed on the basis of the outstanding Principal Balance of each related Restricted Mortgage Loan immediately prior to the time the Trust or the Trustee on behalf of the Trust acquired title to the related Restricted Mortgaged Property) that exceeds 0.95% of the aggregate of the Principal Balance of the Mortgage Loans as of the preceding Determination Date, then the Seller shall, on or prior to the next succeeding Deposit Date, purchase one or more of such Restricted Mortgaged Properties at a price equal to the fair market value of the related Restricted Mortgaged Property (calculated by the Servicer in a manner consistent with the Servicer's customary practice of making valuation determinations in foreclosure proceedings relating to residential mortgage loans in its servicing portfolio at the time of such purchase) so that the aggregate value of such Restricted Mortgaged Properties (calculated as specified above) then owned by the Trust or the Trustee on behalf of the Trust after such purchase or purchases does not exceed 0.90% of the then aggregate of the Principal Balance of the Mortgage Loans. Such purchase price shall be deposited in the Certificate Account on the date of such purchase in the manner described in Section 2.03. For purposes of this Agreement, any purchase effected in accordance with this paragraph shall be deemed to be a prepayment of the related Restricted Mortgage Loan. Upon receipt of the related purchase price and written notification of 60 66 such deposit signed by a Servicing Officer, the Trustee shall release or cause to be released to the Seller the related Mortgage File and other property (including any insurance policy or related present or future insurance proceeds with respect thereto) and shall execute and deliver or cause to be executed and delivered such instruments of transfer or assignment presented to it by the Seller, without recourse, as shall be necessary to vest in the Seller, all of the legal and beneficial ownership of each such Restricted Mortgaged Property and the Trustee shall have no further responsibility with respect to said Mortgage File. Notwithstanding the foregoing, the Servicer, at its sole option, may purchase from the Trust on any Deposit Date any Mortgage Loan as to which the related Mortgagor has failed to make full Monthly Mortgage Payments as required under the related Mortgage Note for three consecutive months at any time following the Cut-off Date and prior to such Deposit Date at a price equal to the Purchase Price by depositing such amount in the Certificate Account on such Deposit Date pursuant to Section 3.02; provided, however, that the aggregate Principal Balances of the Mortgage Loans purchased by the Servicer pursuant to the exercise of the option granted in this sentence shall not exceed 5% of the sum of the Original Pool Balance. In addition, the Servicer, at its sole option, may purchase from the Trust on any Deposit Date occurring during the 90-day period following the Closing Date any Mortgage Loan as to which a Monthly Mortgage Payment becomes 60 or more days contractually delinquent at any time following the Cut-off Date and prior to such Deposit Date at a price equal to the Purchase Price by depositing such amount in the Certificate Account on such Deposit Date pursuant to Section 3.02; provided, however, that the aggregate Principal Balances of the Mortgage Loans purchased by the Servicer pursuant to the exercise of the option granted in this sentence shall not exceed 5% of the sum of the Original Pool Balance. For purposes of this Agreement, any purchase effected in accordance with this paragraph shall be deemed to be a prepayment of each Mortgage Loan so purchased. In the event that title to any Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee, or to its nominee, on behalf of the Certificateholders, and the Servicer shall manage, conserve, protect and operate each such Mortgaged Property for the Certificateholders solely for the purpose of its prompt disposition and sale. The Servicer shall use its best efforts to dispose of each such Mortgaged Property as expeditiously as possible consistent with the goal of maximizing Net Liquidation Proceeds (taking into account any unreimbursed Monthly Advances made or expected to be made with respect to such Mortgage Loan). Neither the Trustee nor the Servicer, acting on behalf of the Trust, shall provide financing from the Trust to any purchaser of any such Mortgaged Property. In the event that the Trust acquires any Mortgaged Property as aforesaid or otherwise in connection with a default or imminent default on a Mortgage Loan, such Mortgaged Property shall be disposed of by the Servicer on behalf of the Trust before the last day of the third calendar year following the year in which the foreclosure occurred unless (i) the Servicer on behalf of the REMIC Pool has applied for and received an extension of such two-year period pursuant to Code Sections 856(e)(3) and 860G(a)(8)(A), in which case the Servicer shall sell such Mortgaged Property within the applicable extension period or (ii) the Trustee shall have received an Opinion of Counsel to the effect that the holding by the Trust of such Mortgaged Property subsequent to two years after its acquisition will not result in a tax on prohibited transactions imposed by Code Section 860F(a)(1), 61 67 or otherwise subject the REMIC Pool to tax or cause the REMIC Pool to fail to qualify as a REMIC at any time that any Certificates are outstanding. The Servicer shall further ensure that the Mortgaged Property is administered so that it constitutes "foreclosure property" within the meaning of Code Section 860G(a)(8) at all times, that the sale of such property does not result in the receipt by the REMIC Pool of any income from non-permitted assets as described in Code Section 860F(a)(2)(B), and that the REMIC Pool does not derive any "net income from foreclosure property" within the meaning of Code Section 860G(c)(2) with respect to such property. Section 3.07. Trustee to Cooperate; Release of Mortgage Files. Upon the payment in full of the principal balance of any Mortgage Loan, if the Trustee is holding the Mortgage Files, the Servicer shall notify the Trustee by a certification in the form of Exhibit E hereto (which certification shall include a statement to the effect that all amounts received in connection with such payment which are required to be deposited to the Collection Account pursuant to Section 3.02 have been so deposited) of a Servicing Officer. Such notification shall be made each month at the time that the Servicer delivers its Servicer Remittance Report to the Trustee pursuant to Section 4.01. Upon any such payment in full, the Servicer is authorized to procure from such trustee under the Mortgage that secured the related Mortgage Note a deed of full reconveyance covering the related Mortgaged Property encumbered by such Mortgage, which deed, except as otherwise provided in Section 2941(c) of the California Civil Code or other applicable law, shall be recorded by such trustee in the office of the County Recorder in which the Mortgage is recorded, or, as the case may be, to procure from such trustee an instrument of satisfaction or, if the related Mortgagor so requests, an assignment without recourse, in each case prepared by the Servicer at its expense and executed by the Trustee, which deed of reconveyance, instrument of satisfaction or assignment shall be delivered by the Servicer to the Person entitled thereto, it being understood and agreed that no expenses incurred in connection with such deed of reconveyance, assignment or instrument of satisfaction shall be reimbursed from amounts at the time on deposit in the Collection or Certificate Account. From time to time and as appropriate for the servicing or foreclosure of any Mortgage Loan, the Trustee shall, upon written request of the Servicer and delivery to the Trustee of a trust receipt signed by a Servicing Officer, release the related Mortgage File to the Servicer and shall execute such documents prepared by the Servicer as shall be necessary to the prosecution of any such proceedings. Such trust receipt shall obligate the Servicer to return the Mortgage File to the Trustee when the need therefor by the Servicer no longer exists unless the Mortgage Loan shall be liquidated, in which case, upon receipt of a certificate of a Servicing Officer similar to that herein above specified, the trust receipt shall be released by the Trustee to the Servicer. Section 3.08. Servicing Compensation; Payment of Certain Expenses by the Servicer. On each Deposit Date, the Servicer shall be entitled to receive, by withdrawal by the Servicer from the Collection Account, out of collections of interest on the Mortgage Loans in the related Mortgage Loan Group for the related Collection Period, as servicing compensation for such Collection Period, the Monthly Servicing Fee for such Mortgage Loan Group. Additional servicing compensation shall be assumption fees, late payment charges, charges for checks returned for insufficient funds, prepayment fees, if any, or extension and other administrative charges received by the Servicer and any earnings on investment by the Servicer of amounts held in escrow accounts established thereby on behalf of Mortgagors (any such investment to be made in compliance with applicable law). The Servicer is obligated to pay Compensating Interest for the related Mortgage Loan Group out of the 62 68 related Monthly Servicing Fee on each Deposit Date, to the extent of the amount of the Monthly Servicing Fee, and shall not be entitled to reimbursement therefor. The Servicer shall be required to pay all expenses incurred by it in connection with its activities hereunder (including payment of the fees and expenses relating to the Annual Independent Public Accountant's Servicing Report described in Section 3.10, and all other fees and expenses not otherwise expressly stated hereunder for the account of the Certificateholders) and shall not be entitled to reimbursement therefor except as specifically provided herein. Section 3.09. Annual Statement as to Compliance. (a) The Servicer will deliver to the Trustee and each Rating Agency, on or before September 30 of each year, beginning with September 30, 1998, an Officer's Certificate of the Servicer substantially in the form set forth in Exhibit C hereto stating that (a) a review of the activities of the Servicer during the preceding calendar year (or since the Closing Date in the case of the first such statement) and of its performance under this Agreement has been made under such officer's supervision and (b) to the best of such officer's knowledge, based on such review, the Servicer has fulfilled all its material obligations under this Agreement throughout such year (or since the Closing Date in the case of the first such statement), or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. (b) The Servicer shall deliver to the Trustee, with a copy to each Rating Agency, promptly after having obtained knowledge thereof, but in no event later than five Business Days thereafter, written notice by means of an Officer's Certificate of any event that with the giving of notice or the lapse of time, or both, would become an Event of Default. Section 3.10. Annual Independent Public Accountants' Servicing Report. On or before September 30 of each year, beginning with September 30, 1998, the Servicer at its expense shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer) to furnish a report to the Trustee and each Rating Agency to the effect that such firm has examined certain documents and records (including the Servicer Remittance Reports delivered by the Servicer during the period covered by such reports) relating to the servicing activities of the Servicer (which would include servicing of Mortgage Loans under this Agreement) for the period covered by such report, and that such examination (which will have been conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers to the extent that the procedures in such audit guide are applicable to the servicing obligations set forth in this Agreement), has disclosed no exceptions or errors in records relating to the servicing activities of the Servicer, including servicing of Mortgage Loans subject to this Agreement, that, in the opinion of such firm, are material, except for such exceptions as shall be set forth in such report. Section 3.11. Access to Certain Documentation and Information Regarding the Mortgage Loans. (a) The Servicer shall provide to Certificateholders that are federally insured savings associations and the FDIC and its supervisory agents and examiners access to the documentation regarding the Mortgage Loans required by applicable regulations of the Office of Thrift Supervision, and to the Trustee all documentation relating to the Mortgage Loans that is in the possession of the Servicer, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices of the Servicer. Nothing in this Section shall derogate from the 63 69 obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Mortgagors and the failure of the Servicer to provide access as provided in this Section as a result of such obligation shall not constitute a breach of this Section. (b) The Servicer shall supply information to the Trustee in such form as the Trustee shall reasonably request, by the start of the third Business Day preceding each Distribution Date, as is required in the Trustee's reasonable judgment to enable the Trustee to make required distributions and to furnish the certificates, statements and reports to Certificateholders required pursuant to this Agreement. Section 3.12. Maintenance of Fidelity Bond and Errors and Omission Policy. The Servicer shall during the term of its service as Servicer maintain in force a (a) policy or policies of insurance covering errors and omissions in the performance of its obligations as Servicer hereunder and (b) fidelity bond in respect of its officers, employees and agents, in each case having coverage amounts deemed by the Servicer to be adequate to its operations. Section 3.13. Notices to the Rating Agencies and the Trustee. In addition to the other notices required to be given to the Rating Agencies and the Trustee by the provisions of this Agreement, the Servicer shall give notice to each Rating Agency and the Trustee of (a) any amendment to this Agreement, (b) the final distribution on the Offered Certificates, (c) the occurrence of an Event of Default and (d) the repurchase, purchase or substitution, as applicable, of any Mortgage Loan pursuant to Section 2.03, 2.05, 3.01 or 3.06 by the Seller or Servicer, as the case may be. Section 3.14. Reports of Foreclosures and Abandonment of Mortgaged Properties. Each year beginning in 1998 the Servicer shall make the reports of foreclosures and abandonments of any Mortgaged Property required by Code Section 6050J. In order to facilitate this reporting process, the Servicer, on or before February 28th of each year, shall provide to the Internal Revenue Service and the Trustee reports relating to each instance occurring during the previous calendar year in which the Servicer (i) on behalf of the Trustee acquired an interest in a Mortgaged Property through foreclosure or other comparable conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to know that a Mortgaged Property has been abandoned. The reports from the Servicer shall be in form and substance sufficient to meet the reporting requirements imposed by such Section 6050J. Section 3.15. Sub-Servicers and Sub-Servicing Agreements. (a) The Servicer may enter into Sub-Servicing Agreements for any servicing and administration of Mortgage Loans with any institution that is in compliance with the laws of each state necessary to enable it to perform its obligations under such Sub-Servicing Agreement. The Servicer shall not enter into any Sub- Servicing Agreement that does not provide for the servicing of the Mortgage Loans specified therein on a basis consistent with the terms of this Agreement or that otherwise violates the provisions of this Agreement. The Servicer may enter into, and make amendments to, any Sub-Servicing Agreement or enter into different forms of Sub-Servicing Agreements; provided, however, that any such amendments or forms shall be consistent with and not violate the provisions of this Agreement. 64 70 (b) For purposes of this Agreement the Servicer shall be deemed to have received payments on Mortgage Loans when any Sub-Servicer has received such payments. With respect to the Servicer's obligations under Section 3.01 to make deposits in the Collection Account, the Servicer shall be deemed to have made such deposits when any Sub-Servicer has made such deposits into a Sub-Servicing Account if permitted by the related Sub-Servicing Agreement. (c) Any Sub-Servicing Agreement and any other transactions or services relating to the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the Sub-Servicer and the Servicer alone and the Trustee shall not be deemed party thereto and shall have no claims, rights, obligations, duties or liabilities with respect to any Sub-Servicer, except that the Trustee shall have such claims or rights that arise as a result of any funds held by a Sub-Servicer in trust for or on behalf of the Trust. Notwithstanding the execution of any Sub-Servicing Agreement, the Servicer shall not be relieved of any liability hereunder and shall remain obligated and liable for the servicing and administration of the Mortgage Loans. Section 3.16. [Reserved.] Section 3.17. [Reserved] Section 3.18. [Reserved] Section 3.19. [Reserved] Section 3.20. Trust and Accounts Held for Benefit of the Certificateholders. The Trustee shall hold the Trust and the Mortgage Files for the benefit of the Certificateholders. The Servicer hereby acknowledges and agrees that it shall service and administer the Mortgage Loans and any REO Properties, and shall maintain the Collection Account for the benefit of the Certificateholders. ARTICLE FOUR REMITTANCE REPORT Section 4.01. Servicer Remittance Report. With respect to each Distribution Date, not later than the fifth Business Day prior to the related Deposit Date the Servicer shall deliver to the Trustee a computer-readable magnetic tape containing the Servicer Remittance Report relating to the Fixed Rate Group and the Servicer Remittance Report relating to the Adjustable Rate Group detailing the payments and collections received in respect of the Mortgage Loans in the related Mortgage Loan Group during the immediately preceding Collection Period. The computer-readable magnetic tape shall include loan-by-loan information that specifies account number, borrower name, outstanding principal balance and activity since the last Distribution Date. Such tape shall be in the form and have the specifications as may be agreed to between the Servicer and the Trustee from time to time. In addition to the foregoing, the Servicer shall provide the Trustee at the time the tape is delivered to the Trustee a Liquidation Report for the Fixed Rate Group, with respect to each Mortgage Loan in the Fixed Rate Group that became a Liquidated Mortgage Loan during the related Collection Period and a Liquidation Report for the Adjustable Rate Group, with respect to each 65 71 Mortgage Loan in the Adjustable Rate Group that became a Liquidated Mortgage Loan during the related Collection Period, in either case substantially in the form of Exhibit F hereto. Section 4.02. Trustee Distribution Date Statement. The Trustee shall, not later than the Business Day prior to each Deposit Date, furnish by telecopy to the Servicer and each Rating Agency a statement derived from information on the Servicer Remittance Report for each Mortgage Loan Group and the related Offered Certificates, relating to the next succeeding Distribution Date: (a) the total amount of payments in respect of or allocable to interest on the Mortgage Loans received or deemed to have been received from the related Mortgagors by the Servicer during such Collection Period (including any net income from REO Properties received during the related Collection Period); (b) the aggregate amount of all Principal Prepayments received from the related Mortgagors by the Servicer during such Collection Period; (c) the aggregate amount of all Principal Payments received or deemed to have been received from the related Mortgagors by the Servicer during such Collection Period; (d) the total amount of Payments Ahead received during the related Collection Period; (e) the aggregate of any Trust Insurance Proceeds received by the Servicer during such Collection Period; (f) the aggregate of any Net Liquidation Proceeds received by the Servicer during such Collection Period; (g) the total amount of Compensating Interest payments to be paid by the Servicer pursuant to Section 3.08; (h) the aggregate Purchase Prices for (i) any Defective Mortgage Loans that the Seller is required to repurchase on the related Deposit Date pursuant to Section 2.03 or 2.05 and (ii) any Mortgage Loan that the Servicer is required to purchase on the related Deposit Date pursuant to Section 3.01 or 3.06; (i) any amounts required to be deposited by the Seller on the related Deposit Date in connection with the substitution of a Qualified Replacement Mortgage Loan pursuant to Section 2.03 or 2.05; (j) the amount of Monthly Advances to be made by the Servicer pursuant to Section 5.02(a); (k) the related Monthly Servicing Fee attributable to the Mortgage Loans in the related Mortgage Loan Group; 66 72 (l) the amount of Monthly Advances reimbursable to the Servicer in such Collection Period pursuant to Section 5.02(a) and not previously reimbursed; (m) the amount of any Servicing Advance made by the Servicer pursuant to Section 5.02(b) and not previously reimbursed; (n) the amount of any Interest Shortfall for the related Distribution Date; and (o) the number and Principal Balance of Mortgage Loans in each Mortgage Loan Group that, as of the related Determination Date were (i) 30 or more days contractually delinquent, (ii) 60 or more days contractually delinquent, (iii) 90 or more days contractually delinquent, (iv) in foreclosure or (v) as to which the relate Mortgaged Property was REO. ARTICLE FIVE PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS Section 5.01. Distributions. On each Distribution Date, the Trustee shall distribute to each Certificateholder of record on the related Record Date (other than as provided in Section 10.01 respecting the final distribution to Certificateholders if the termination of the Trust is in connection with a purchase of the assets of the Trust by the Servicer pursuant to Section 10.01) by check or money order mailed to such Certificateholder at the address appearing in the Certificate Register, or upon written request by a Holder of a Certificate, by wire transfer (in the event such Certificateholder owns of record one or more Certificates that have principal denominations aggregating at least $5,000,000 and has given the Trustee, at least five Business Days prior to the related Record Date, written instruction for making such wire transfer to a bank account maintained in the United States), or by such other means of payment as such Certificateholder and the Trustee shall agree, such Certificateholder's Percentage Interest of the following amounts (to the extent applicable to the Class of such Holder's Certificate) and in the following orders of priority with respect to each Mortgage Loan Group. Notwithstanding such priorities, the aggregate of amounts distributed on all Distribution Dates in reduction of the Certificate Principal Balance of any Class shall not exceed the Certificate Principal Balance of such Class as of the Closing Date. (a) On each Distribution Date interest distributions will be made in the following order of priority: First, to the Class A Certificateholders, Monthly Interest with respect to the related Mortgage Loan Group on a pro rata basis based on the aggregate amount of Accrued Certificate Interest to the holders of the Certificate of each such Class within the Fixed Rate Group Certificates or Adjustable Rate Group Certificates, as the case may be, up to the amount of Accrued Certificate Interest with respect to such Class plus any outstanding Interest Carry Forward Amount with respect to such Class; Second, to the Class M-1F and Class M-1A Certificateholders, Monthly Interest with respect to the related Mortgage Loan Group then remaining, up to the amount of Accrued Certificate Interest with respect to such Class; 67 73 Third, to the Class M-2F and Class M-2A Certificateholders, Monthly Interest with respect to the related Mortgage Loan Group then remaining, up to the amount of Accrued Certificate Interest with respect to such Class; Fourth, to the Class B-1F and Class B-1A Certificateholders, Monthly Interest with respect to the related Mortgage Loan Group then remaining, up to the amount of Accrued Certificate Interest with respect to such Class; Fifth, with respect to the Fixed Rate Group only, to the Class B-2F Certificateholders, Monthly Interest with respect to the related Mortgage Loan Group then remaining, up to the amount of Accrued Certificate Interest with respect to such Class; and Sixth, any Monthly Excess Cash Flow Amount will be applied as set forth in Section 5.01(c). (b) With respect to each Mortgage Loan Group and Distribution Date before the related Stepdown Date, the related Certificateholders will be entitled to receive payment of the sum of 100% of the Principal Distribution Amount and Extra Principal Distribution Amounts with respect to such Mortgage Loan Group for such Distribution Date as follows: in the case of the Fixed Rate Group Certificates, first, to the Class A-6F Certificateholders, the Class A-6F Lockout Distribution Amount, and then to all Fixed Rate Group Certificateholders, by Class in sequential order until the Certificate Principal Balance of each such Class has been reduced to zero, and in the case of the Adjustable Rate Group Certificates, to the Adjustable Rate Group Certificateholders by Class, in sequential order until the Certificate Principal Balance of each such Class has been reduced to zero. With respect to each Mortgage Loan Group and each Distribution Date on or after the related Stepdown Date, Certificateholders will be entitled to receive payments of principal in the order of priority and amounts set forth below up to the related Principal Distribution Amount and Extra Principal Distribution Amount: With respect to the Fixed Rate Group Certificates: First, the Fixed Rate Group Principal Distribution Amount, not to exceed the related Class A Principal Distribution Amount, shall be distributed to the Class A-6F Certificateholders up to the Class A-6F Lockout Distribution Amount, and any remaining amount thereof shall be distributed to the Fixed Rate Group Class A Certificateholders, in sequential order by Class, until the Certificate Principal Balance of each such Class has been reduced to zero; Second, any remaining Fixed Rate Group Principal Distribution Amount, not to exceed the related Class M-1 Principal Distribution Amount, shall be distributed to the Class M-1F Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; Third, any remaining Fixed Rate Group Principal Distribution Amount, not to exceed the related Class M-2 Principal Distribution Amount, shall be distributed to the Class M-2F Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; 68 74 Fourth, any remaining Fixed Rate Group Principal Distribution Amount, not to exceed the related Class B-1 Principal Distribution Amount, shall be distributed to the Class B-1F Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; Fifth, any remaining Fixed Rate Group Principal Distribution Amount, not to exceed the Class B-2 Principal Distribution Amount, shall be distributed to the Class B-2F Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; and Sixth, any remaining Fixed Rate Group Principal Distribution Amount shall be distributed as part of the Monthly Excess Cashflow Amount with respect to such Mortgage Loan Group as set forth in Section 5.01(c). With respect to Adjustable Rate Group Certificates: First, the Adjustable Rate Group Principal Distribution Amount, not to exceed the related Class A Principal Distribution Amount, shall be distributed to the Class A-1A Certificateholders until the Certificate Principal Balance thereof has been reduced to zero; Second, any remaining Adjustable Rate Group Principal Distribution Amount, not to exceed the related Class M-1 Principal Distribution Amount, shall be distributed to the Class M-1A Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; Third, any remaining Adjustable Rate Group Principal Distribution Amount, not to exceed the related Class M-2 Principal Distribution Amount, shall be distributed to the Class M-2A Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; Fourth, any remaining Adjustable Rate Group Principal Distribution Amount, not to exceed the related Class B-1 Principal Distribution Amount, shall be distributed to the Class B-1A Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; and Fifth, any remaining Adjustable Rate Group Principal Distribution Amount shall be distributed as part of the Monthly Excess Cashflow Amount with respect to such Mortgage Loan Group as set forth in Section 5.01(c). On any Distribution Date on which the sum of the Certificate Principal Balances of the Subordinate Certificates that are Fixed Rate Group Certificates and the related Overcollateralization Amount is zero, any amounts of principal payable to the Fixed Rate Class A Certificateholders on such Distribution Date shall instead be distributed pro rata based on the outstanding Certificate Principal Balances of each such Class. (c) The Monthly Excess Cashflow Amount from the related Mortgage Loan Group shall be applied in the following order of priority on any Distribution Date: (1) to fund any Interest Carry Forward Amount for the related Class A Certificates; 69 75 (2) to fund the related Extra Principal Distribution Amount for such Distribution Date; (3) to fund any Interest Carry Forward Amount for the related Class M-1 Certificates; (4) to fund any Class M-1 Realized Loss Amortization Amount; (5) to fund any Interest Carry Forward Amount for the related Class M-2 Certificates; (6) to fund any Class M-2 Realized Loss Amortization Amount; (7) to fund any Interest Carry Forward Amount for the related Class B Certificates; (8) to fund any Class B-1 Realized Loss Amortization Amount (in the case of the Fixed Rate Group, first to the Class B-1F Certificates and then, second, to the Class B-2F Certificates); (9) to the Servicer to the extent of any unreimbursed Monthly Advances or Servicing Advances; (10) to fund, first any Extra Principal Distribution Amount, and second, any Realized Loss Amortization Amounts with respect to the other Mortgage Loan Group and the Offered Certificates related thereto to the extent that such amounts have not been funded in full through the application of the Monthly Excess Cashflow Amount with respect to such other Mortgage Loan Group on such Distribution Date; (11) to fund a distribution to Class C Certificateholders of the Class C Distribution Amount plus any Class C Carryforward Amount; and (12) to fund a distribution to the Class III-R Certificates. Section 5.02. Monthly Advances; Servicing Advances. (a) On or before each Deposit Date, the Servicer will deposit in the Certificate Account in respect of the Fixed Rate Group and the Adjustable Rate Group, in same day funds, an amount, if any (a "Monthly Advance"), equal to the sum of (i) with respect to all Mortgage Loans that are delinquent as of the close of business on the related Determination Date, the aggregate of the interest portions of each Monthly Mortgage Payment in respect of the related Mortgage Loan Group due during the related Collection Period (net of the aggregate of the Monthly Servicing Fees for each Mortgage Loan Group attributable to such Mortgage Loans), inclusive of those amounts representing the interest portions of Monthly Mortgage Payments due during the first Collection Period, plus (ii) with respect to all Mortgage Loans that are not delinquent Mortgage Loans as of the close of business on the last day of such Collection Period, an amount equal to the amount of interest that would accrue on each such Mortgage Loan at the 70 76 related Mortgage Loan Rate (net of the aggregate of the Monthly Servicing Fees for each Mortgage Loan Group attributable to such Mortgage Loans) in a period of 30 days minus the number of days from the first day of such Collection Period to the related due date for such Mortgage Loan during such Collection Period, plus (iii) with respect to each Mortgaged Property that was acquired in foreclosure or similar action (each, an "REO Property") during or prior to the related Collection Period and as to which a final sale did not occur during the related Collection Period, an amount equal to the excess, if any, of interest on the Principal Balance of such REO Property at the related Mortgage Interest Rate (net of the Monthly Servicing Fee attributable to such REO Property) over the net income from such REO Property transferred to the Collection Account or the Certificate Account, as the case may be, for such Distribution Date; provided, however, that in no case will the Servicer be required to make advances with respect to any period or portion of any Collection Period following the final due date with respect to any Mortgage Loan. All or a portion of any Monthly Advance required to be made on a Deposit Date may be paid out of amounts on deposit in the Collection Account in respect of the related Mortgage Loan Group that are not required to be deposited on such Deposit Date in the Certificate Account as any portion of Monthly Interest for such Mortgage Loan Group and the related Distribution Date; provided, however, that the Servicer shall be required to replace any such amounts by deposit to the Collection Account on or before the next Deposit Date and the amount of such deposit shall thereafter be considered a Monthly Advance for purposes of reimbursement under this Agreement. The Servicer may recover Monthly Advances, if not theretofore recovered from the Mortgagor on whose behalf such Monthly Advance was made, from collections on the related Mortgage Loan, including Liquidation Proceeds, Insurance Proceeds and such other amounts as may be collected by the Servicer from the Mortgagor or otherwise relating to the Mortgage Loan or, as provided in clause (10) of Section 5.01(c), from amounts in re spect of the related Mortgage Loan Group that would otherwise be distributed to the Class C Certi ficateholder on such Distribution Date. (b) The Servicer shall from time to time during the term of this Agreement make such Servicing Advances as the Servicer shall deem appropriate or advisable under the circumstances and are required pursuant to the terms of this Agreement. Servicing Advances may be paid by the Servicer out of amounts on deposit in the Collection Account in respect of the related Mortgage Loan Group from time to time; provided, however, that the Servicer shall be required to replace any such amounts by deposit to the Collection Account in respect of the related Mortgage Loan Group on or before the first Deposit Date occurring after the payment of a Servicing Advance with such amounts, and the amount of such deposit shall thereafter be considered a Servicing Advance for purposes of reimbursement under this Agreement. All Servicing Advances made by the Servicer shall be reimbursable from collections or recoveries relating to the Mortgage Loans in respect of which such Servicing Advances have been made or, as provided in clause (10) of Section 5.01(c) with respect to the Adjustable Rate Group Mortgage Loans, from amounts that would otherwise be distributed to the Class R Certificateholder on a Distribution Date. Notwithstanding anything herein to the contrary, no Servicing Advances need by made hereunder if such Servicing Advance would, if made, constitute a Nonrecoverable Advance. Section 5.03. Statements to Certificateholders. Concurrently with each distribution charged to the Certificate Account on a Distribution Date the Trustee shall forward to each Rating Agency and shall mail to each Holder of a Certificate, a written statement setting forth the following 71 77 information with respect to the applicable Class of Offered Certificates to which such statement (a "Statement to Certificateholders") relates: (a) the amount of the distribution with respect to each Class of Certificates; (b) the amount of such distributions allocable to principal on the related Mortgage Loans in each Mortgage Loan Group, separately identifying the aggregate amount of any Prepayments or other recoveries of principal included therein; (c) the amount of such distributions allocable to interest; (d) the Interest Carry Forward Amount for each Class; (e) the outstanding Certificate Principal Balance (or Notional Amount) of each Class of Offered Certificates which will be outstanding after giving effect to any payment of principal on such Distribution Date; (f) the aggregate of the Principal Balances of all Mortgage Loans after giving effect to any payments of principal on such Distribution Date by Mortgage Loan Group and for the entire Trust, and each Group Factor; (g) based upon information furnished by the Sponsor, such information as may be required by Section 6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist the Certificateholders in computing their market discount; (h) the total of all amounts paid by the Sponsor and the Servicer during the related Collection Period in connection with purchases or repurchases from the Trust of Mortgage Loans and substitutions for Mortgage Loans of Qualified Replacement Mortgage Loans with respect to each Mortgage Loan Group and by reason for such purchase; (i) the weighted average Mortgage Loan Rate of the Mortgage Loans with respect to each Mortgage Loan Group; (j) whether a Trigger Event has occurred; (k) the Senior Enhancement Percentage for each Mortgage Loan Group; (l) the amount of any Extra Principal Distribution Amount included in such distribution; (m) the related Overcollateralization Amount and Targeted Overcollateralization Amount for each Mortgage Loan Group; (n) The Rolling Delinquency Percentage and the Loss Percentage for each Mortgage Loan Group; and 72 78 (o) the amount of any Applied Realized Loss Amount, Realized Loss Amortization Amount and Unpaid Realized Loss Amount for each Class as of the close of such Distribution Date. In the case of information furnished pursuant to subclauses (a), (b) and (c) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 principal denomination. Within 90 days after the end of each calendar year, the Trustee shall mail such report to Prudential Securities Incorporated, One New York Plaza, 15th Floor, New York, New York 10038, Attention: Mary Alice Kohs (which report shall include, in addition to the in formation contained in reports to others hereunder, the total amount of interest on the Mortgage Loans for the period covered by such report), and to each Person who at any time during the calendar year was an Offered Certificateholder, a statement for each Certificateholder containing the information set forth in subclauses (a) through (c) above, aggregated for such calendar year or, in the case of each Person who was an Offered Certificateholder for a portion of such calendar year, setting forth such information for each month thereof for the portion of the year during which such Person was a Certificateholder. The Servicer shall provide any other information necessary in order to report income in respect of the Certificateholders for federal income tax purposes. Section 5.04. Applied Realized Loss Amount. On each Distribution Date, based on the information furnished by the Servicer, the Trustee shall determine the total of the Applied Realized Loss Amounts for each Mortgage Loan Group for such Distribution Date. The Applied Realized Loss Amount for each Mortgage Loan Group for any Distribution Date shall be applied by reducing the Certificate Principal Balance of each Class of Subordinate Certificates beginning with the related Class B Certificates, and then the related Class M Certificates then outstanding with the highest numerical Class designation, in each case until the respective Certificate Principal Balance thereof is reduced to zero. Any Applied Realized Loss Amount allocated to a Class of Certificates shall be allocated among the Certificates of such Class in proportion to their respective Percentage Interests. ARTICLE SIX THE CERTIFICATES Section 6.01. The Certificates. (a) The Certificates of each Class shall be substantially in the forms set forth with respect thereto in Exhibit A hereto, respectively, and shall, on original issue, be executed and delivered by the Trustee on behalf of the Trust, not individually but solely as Trustee to or upon the order of the Seller concurrently with the sale and assignment to the Trustee of the Trust. (b) The Book-Entry Certificates will be evidenced by one or more certificates, beneficial ownership of which will be held (i) in the case of the Class A Certificates, in minimum dollar denominations of $1,000 and integral multiples of $1 in excess thereof; and 73 79 (ii) in the case of the Subordinate Certificates, in minimum dollar denominations of $25,000 and integral multiples of $1 in excess thereof. Each of the Class R Certificates shall be issuable solely as a single Class R Certificates evidencing the entire Percentage Interest of such Class R Certificates. (c) The Certificates shall be executed by manual or facsimile signature by the Trustee on behalf of the Trust (not in its individual capacity but solely as Trustee) by an authorized officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures were affixed, authorized to sign on behalf of the Trustee shall bind the Trust, notwithstanding that such individuals or any of them have ceased to be so authorized prior to the countersigning and delivery of such Certificates or did not hold such offices at the date of such Certificate. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless such Certificate shall have been manually authenticated by the Trustee substantially in the form provided for herein, and such signature upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Section 6.02. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at the Corporate Trust Office a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose pursuant to the foregoing paragraph and upon satisfaction of the conditions set forth in Section 6.02(b) and (c), the Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of the same Class and of a like aggregate Percentage Interest. At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of the same Class and of a like aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange the Trustee shall execute, authenticate and deliver the Certificates that the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Certificateholder for any transfer or exchange of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of certificates. 74 80 All Certificates surrendered for transfer or exchange shall be canceled by the Trustee in accordance with its standard procedures. (b) No transfer of a Class R Certificate shall be made unless, as evidenced by an Opinion of Counsel and Transfer Affidavit delivered to the Trustee, each in form and substance satisfactory to the Trustee, such transfer is not subject to registration under the Securities Act or any applicable state securities laws. Any such Opinion of Counsel and Transfer Affidavit shall not be obtained at the expense of the Trustee, the Trust, the Seller or the Servicer. The Holder of a Class R Certificate desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Seller and the Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with the Securities Act and such state laws. Neither the Seller, the Servicer nor the Trustee or the Trust is under an obligation to register the Class R Certificates under the Securities Act or any state securities law. The Class R Certificates, this Agreement and related documents may be amended or supplemented from time to time to modify restrictions on and procedures for resale and other transfer of such Class R Certificate to reflect any change in applicable law or regulation (or the interpretation thereof) or practices relating to the resale or transfers of restricted securities generally. (c) No transfer of a Class R Certificate shall be made unless, as evidenced by an Opinion of Counsel and Transfer Affidavit delivered to the Trustee, each in form and substance satisfactory to the Trustee, such transfer is not subject to registration under the Securities Act or any applicable state securities laws. Any such Opinion of Counsel and Transfer Affidavit shall not be obtained at the expense of the Trustee, the Trust, the Seller or the Servicer. The Holder of a Class R Certificate desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Seller and the Servicer against any liability that may result if the transfer is not so exempt or is not made in accordance with the Securities Act and such state laws. Neither the Seller, the Servicer nor the Trustee or the Trust is under an obligation to register the Class R Certificates under the Securities Act or any state securities law. The Class R Certificates, this Agreement and related documents may be amended or supplemented from time to time to modify restrictions on and procedures for resale and other transfer of such Class R Certificate to reflect any change in applicable law or regulation (or the interpretation thereof) or practices relating to the resale or transfers of restricted securities generally. No legal or beneficial interest in all or any of the Class R Certificates may be transferred directly or indirectly to: (i) a Disqualified Organization or an agent of a Disqualified Organization (including a broker, nominee or middleman), (ii) to an entity that holds REMIC residual securities as nominee to facilitate the clearance and settlement of such securities through electronic book-entry changes in accounts of participating organizations (a "Book-Entry Nominee"), (iii) an individual, corporation, partnership or other Person 75 81 unless such transferee (A) is not a Foreign Person or (B) is a Foreign Person that will hold such Class R Certificate in connection with the conduct of a trade or business within the United States and has furnished the transferor and the Trustee with an effective Internal Revenue Service Form 4224 or (C) is a Foreign Person that has delivered (at the expense of the Transferee) to both the transferor and the Trustee an opinion of a nationally recognized tax counsel to the effect that the transfer of the Class R Certificate to it is in accordance with the requirements of the Code and the regulations promulgated thereunder and that such transfer of the Class R Certificate will not be disregarded for federal income tax purposes (any such Person who is not covered by clause (A), (B) or (C) above being referred to herein as a "Non-permitted Foreign Holder") or (iv) to an ERISA Plan or an entity, including an insurance company separate account or general account, whose underlying assets include ERISA Plan assets by reason of an ERISA Plan's investment in the entity or a Person investing the assets of an ERISA Plan or such an entity, whether as nominee, trustee, agent or otherwise (such plan, entity or Person, an "ERISA Prohibited Holder"), and any such purported transfer shall be void and have no effect. The Trustee shall not execute, and shall not authenticate and deliver, a new Class R Certificate in connection with any registration of transfer to a Person known to a Responsible Officer of the Trustee to be a Disqualified Organization or agent thereof (including a broker, nominee or middleman), to a Book-Entry Nominee, a Non-permitted Foreign Holder or an ERISA Prohibited Holder, and the Trustee shall not accept a surrender for the registration of transfer or register the transfer of, any Class R Certificate, unless the transferor shall have provided to the Trustee a Transfer Affidavit substantially in the form attached as Exhibit D hereto, signed by the transferee, to the effect that the transferee is not a Disqualified Organization and is not a nominee for a beneficial owner of the Class R Certificate from which the transferee has not received a substantially similar affidavit, a Book-Entry Nominee, a Non-permitted Foreign Holder or an ERISA Prohibited Holder. Such Transferor Affidavit shall contain (i) the consent of the transferee to any such amendments of this Agreement as may be required to further effectuate the foregoing restrictions on transfer of the Class R Certificates to Disqualified Organizations, Book-Entry Nominees, Non-permitted Foreign Holders or ERISA Prohibited Holders and (ii) a representation from the transferee that such transferee does not have the intent or purpose to impede the assessment or collection of any federal, state or local income taxes legally required to be paid with respect to the Class R Certificates. Such Transferor Affidavit, if not executed in connection with the initial issuance of the Class R Certificates, also shall be accompanied by a Transferor Affidavit, substantially in the form attached hereto as Exhibit H, signed by the transferor to the effect that as of the time of the transfer, the transferor has no actual knowledge that such affidavit is false and that the transferor does not have the intent or purpose to impede the assessment or collection of any federal, state or local income taxes legally required to be paid with respect to the Class R Certificate. Each Class R Certificate shall bear a legend referring to the foregoing restrictions. Any Person acquiring the Class R Certificate, or beneficial ownership thereof, agrees to give the Servicer written notice that it is a "pass-through interest holder" within the meaning of Treasury Regulation Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring the Class R 76 82 Certificate, or beneficial ownership thereof, if it is, or is acquiring the Class R Certificate on behalf of, a "pass-through interest holder." Upon notice to the Servicer that any legal or beneficial interest in any Class R Certificate has been transferred, directly or indirectly, to a Disqualified Organization in contravention of the foregoing restrictions or to a pass-through entity as defined in the REMIC Provisions an interest of which is held by a Disqualified Organization, the Servicer agrees to furnish to any transferor of the Class R Certificate or such agent or such pass-through entity such as may be required to be delivered thereto by the Code as necessary to the application of Code Section 860E(e) including, but not limited to, the present value of the total anticipated excess inclusions with respect to the Class R Certificate (or portion thereof) for periods after such transfer. At the election of the Servicer, the cost to the Servicer of computing and furnishing such information may be charged to the transferor or such agent referred to above; provided, however, that the Servicer shall in no event be excused from furnishing such information. The Class R Certificates, this Agreement and related documents may be amended or supplemented from time to time to modify restrictions on and procedures for resale and other transfer of the Class R Certificates to reflect any change in applicable law or regulation (or the interpretation thereof) or practices relating to the resale or transfer of restricted securities generally (d) No transfer of a Subordinate Certificate or Class C Certificate, or beneficial interest therein, shall be made unless the Trustee shall have received a representation from the transferee thereof to the effect that: (i) such transferee (A) is not an employee benefit plan or arrangement subject to Section 406 of ERISA or a plan subject to Section 4975 of the Code (a "Plan"), nor a person acting on behalf of a Plan nor using the assets of a Plan to effect such transfer, or (B) is an insurance company purchasing a Class B Certificate or Class C Certificate with funds contained in an "insurance company general account" (as defined in Section V(e) of Prohibited Transaction Class Exemption 95- 60 ("PTCE 95-60")) satisfying Section III of PTCE 95-60; or (ii) such transferee is a Plan or a person acting on behalf of a Plan or using the assets of a Plan to effect such transfer, or is an insurance company purchasing such Certificate with funds contained in an insurance company general account, having attached thereto an opinion of counsel satisfactory to the Trustee, which opinion shall not be an expense of either the Trustee or the Trust, addressed to the Trustee, the Seller and the Servicer, to the effect that the purchase or holding of such Certificate will not result in the assets of the Trust being deemed to be "plan assets" and subject to the prohibited transaction provisions of ERISA and the Code and will not subject the Trustee, the Seller or the Servicer to any obligation in addition to those expressly undertaken in this Agreement or to any liability. 77 83 For purposes of the preceding sentence, with respect to a Subordinate Certificate that is a Book-Entry Certificate, the representations contained in clause (i) above shall be deemed to have been made to the Trustee by the transferee's (including an initial acquiror's) acceptance of such Certificate. Notwithstanding anything else to the contrary herein, any purported transfer of a Subordinate Certificate or Class C Certificate, or a beneficial interest therein, to or on behalf of an employee benefit plan subject to ERISA or to the Code or a person acting on behalf of a Plan or using the assets of a Plan to effect such transfer or to an insurance company purchasing with funds from a general account not exempt pursuant to PTCE 95-60 without the delivery to the Trustee of an opinion of counsel described in clause (ii) above shall be void and of no effect. To the extent permitted under applicable law (including, but not limited to, ERISA), the Trustee shall be under no liability to any Person for any registration of transfer of any Subordinate Certificate or Class C Certificate that is in fact not permitted by Section 6.02(d) or for making any payments due on such Certificate to the Holder thereof or taking any other action with respect to such Holder under the provisions of the Pooling and Servicing Agreement so long as the transfer was registered by the Trustee in accordance with the foregoing requirements. The Subordinate Certificates and Class C Certificates, this Agreement and related documents may be amended or supplemented from time to time to modify restrictions on and procedures for resale and other transfer of such Subordinate Certificates and Class C Certificates to reflect any change in applicable law or regulation (or the interpretation thereof) or practices relating to the resale or transfers of restricted securities generally. (e) The Book-Entry Certificates shall, subject to Section 6.02(e), at all times remain registered in the name of the Depository or its nominee and at all times: (i) registration thereof may not be transferred by the Trustee except to another Depository; (ii) the Depository shall maintain book-entry records with respect to the Certificate Owners and with respect to ownership and transfers of such Certificates; (iii) ownership and transfers of registration of the Certificates issued in book-entry form on the books of the Depository shall be governed by applicable rules established by the Depository and the rights of Certificate Owners with respect to Book-Entry Certificates shall be governed by applicable law and agreements between such Certificate Owners and the Depository, Depository Participants, and indirect participating firms; (iv) the Depository may collect its usual and customary fees, charges and expenses from its Depository Participants; (v) the Trustee shall deal with the Depository as the authorized representative of the Certificate Owners of the Book-Entry Certificates for all purposes including the making of payments due on the Book-Entry Certificates and exercising the rights of Holders of Book-Entry Certificates under this Agreement; (vi) the Trustee may rely and shall be fully protected in relying upon information furnished by the Depository; (vii) Certificate Owners shall not be entitled to certificates for the Book-Entry Certificates and (viii) the Trustee may establish a reasonable record date in connection with solicitations of consents from or voting by holders of Book-Entry Certificates and give notice to the Depository of such record date. 78 84 All transfers by Certificate Owners of Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall only transfer Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. (f) If (x)(i) the Company or the Depository advises the Trustee in writing that the Depository is no longer willing, qualified or able to properly discharge its responsibilities as Depository, and (ii) the Trustee or the Company is unable to locate a qualified successor, (y) the Company at its option advises the Trustee in writing that it elects to terminate the book-entry system through the Depository or (z) after the occurrence of an Event of Default, Certificate Owners representing not less than 51% of the aggregate Class A Certificate Principal Balance of the Book-Entry Certificates together advise the Trustee and the Depository in writing that the continuation of a book-entry system through the Depository is no longer in the best interests of the Certificate Owners, the Trustee shall notify all Certificate Owners, through the Depository, of the occurrence of any such event and of the availability of definitive, fully registered Certificates ("Definitive Certificates") to Certificate Owners requesting the same. Upon surrender to the Trustee of such Certificates by the Depository, accompanied by registration instructions from the Depository for registration, the Trustee shall issue the Definitive Certificates and the expense of any such issuance shall be reimbursed by the Trust pursuant to Section 9.05. Neither the Company nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates all references herein to obligations imposed upon or to be performed by the Depository shall be deemed applicable with respect to such Definitive Certificates and the Certificates as Certificateholders hereunder. (g) On or prior to the Closing Date, there shall be delivered to the Depository one certificate for each Class of Book-Entry Certificates registered in the name of the Depository's nominee, Cede & Co. The face amount of each such Certificate shall be equal to the Principal Balance thereof. Each Certificate issued in book-entry form shall bear the following legend: "Unless this Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein." Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate is surrendered to the Trustee or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (b) there is delivered to the Trustee, 79 85 the Servicer and the Seller such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like Class and Percentage Interest. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Servicer, the Seller, the Trustee and any of their respective agents may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 5.01 and for all other purposes whatsoever, and neither the Servicer, the Seller, the Trustee nor any of their respective agents shall be affected by notice to the contrary. Section 6.05. Actions of Certificateholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by Certificateholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Certificateholders in person or by agent duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, when required, to the Seller or the Servicer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and conclusive in favor of the Trustee, the Seller and the Servicer, if made in the manner provided in this Section. (b) The fact and date of the execution by any Certificateholder of any such instrument or writing may be proved in any reasonable manner that the Trustee deems sufficient. (c) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind every Holder of every Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, or omitted to be done, by the Trustee, the Seller or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. ARTICLE SEVEN THE SERVICER AND THE SELLER Section 7.01. Liability of the Servicer. The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by 80 86 the Servicer herein. Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer. Any corporation or other entity (i) into which the Servicer may be merged or consolidated, (ii) that may result from any merger, conversion or consolidation to which the Servicer shall be a party, or (iii) that may succeed to all or substantially all of the business of the Servicer, which corporation or other entity shall, in any case where an assumption shall not be effected by operation of law, execute an agreement of assumption to perform every obligation of the Servicer under this Agreement, shall be the successor to the Servicer under this Agreement without the execution or filing of any document or any further act by any of the parties to this Agreement; except that if the Servicer is not the surviving entity, then the surviving entity shall execute and deliver to the Trustee an agreement of assumption to perform every obligation of the Servicer hereunder. Section 7.03. Limitation on Liability of the Servicer and Others. Neither the Servicer nor any of its directors, officers, employees or agents shall be under any liability to the Trustee, the Trust or the Certificateholders for any action taken or for refraining from the taking of any action by the Servicer pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Servicer or any such person against any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of the duties of the Servicer or by reason of reckless disregard of the obligations and duties of the Servicer hereunder. The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Mortgage Loans in accordance with this Agreement, and that in its opinion may involve it in any expense or liability. Section 7.04. Servicer Not to Resign. Subject to the provisions of Section 7.02 regarding the merger or consolidation of the Servicer into or with another entity, the Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that the performance of its duties or obligations hereunder is no longer permissible under applicable law or regulation or are in material conflict by reason of applicable law or regulation with any other activities carried on by it at the date of this Agreement. Any such determination permitting the resignation of the Servicer pursuant to this Section shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No resignation pursuant to this Section 7.04 (a) shall become effective until the Trustee or a successor servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 8.02 or (b) shall relieve the Servicer of responsibility for any obligations pursuant to this Agreement that specifically survive the resignation or termination of the Servicer. Each of the Rating Agencies shall be given written notice of a resignation of the Servicer pursuant to this Section. 81 87 Section 7.05. Merger or Consolidation of the Seller. Any corporation or other entity (i) into which the Seller may be merged or consolidated, (ii) that may result from any merger, conversion or consolidation to which the Seller shall be a party, or (iii) that may succeed to all or substantially all of the business of the Seller, which corporation or other entity shall, in any case where an assumption shall not be effected by operation of law, execute an agreement of assumption to perform every obligation of the Seller under this Agreement, shall be the successor to the Seller hereunder without the execution or filing of any document or any further act by any of the parties to this Agreement, except that if the Seller in any of the foregoing cases is not the surviving entity, then the surviving entity shall execute and deliver to the Trustee an agreement of assumption to perform every obligation of the Seller hereunder. Section 7.06. [Reserved]. ARTICLE EIGHT DEFAULT Section 8.01. Events of Default. If any one of the following events (each an "Event of Default") shall occur and be continuing: (a) Any failure by the Servicer to (i) make a Monthly Advance on any Deposit Date or (ii) deposit in the Collection Account or the Certificate Account any other amount required to be deposited therein under this Agreement or failure to pay the Trustee Fee, which failure, in the case of only clause (ii) hereof, continues unremedied for a period of five Business Days after the date upon which written notice of such failure shall have been given to the Servicer by the Trustee or to the Servicer and the Trustee by Holders of Certificates evidencing Voting Interests represented by all Certificates aggregating not less than 51%; (b) Failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in the Certificates or in this Agreement, which failure (i) materially and adversely affects the Certificateholders and (ii) continues unremedied for a period of 30 days after the date on which written notice of such failure (which notice shall refer specifically to this Section), requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of Certificates evidencing Voting Interests represented by all Certificates aggregating not less than 51%; (c) The entry against the Servicer of a decree or order by a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a trustee, conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; 82 88 (d) The consent by the Servicer to the appointment of a trustee, conservator or receiver or liquidator in any bankruptcy, insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Servicer or of or relating to substantially all of its property; or the Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable bankruptcy, insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; (e) For so long as the Company is the Servicer, failure on the part of the Seller duly to observe or perform in any material respect any covenants or agreements of the Seller set forth in the Certificates or in this Agreement, which failure (i) materially and adversely affects the Certificateholders and (ii) continues unremedied for a period of 30 days after the date on which written notice of such failure (which notice shall refer specifically to this Section), requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of Certificates evidencing Voting Interests represented by all Certificates aggregating not less than 51%; or (f) The occurrence of a material default of the Servicer under this Agreement. then, and in each and every such case, so long as such Event of Default shall not have been remedied by the Servicer, either the Trustee or the Holders of Certificates evidencing Voting Interests represented by all Certificates aggregating not less than 51%, by notice then given in writing to the Servicer with a copy to the Trustee, may terminate all of the rights, responsibilities and obligations of the Servicer as servicer under this Agreement. On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the affected Certificates or the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant to and under this Section and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement of the Mortgage Loans and related documents, or otherwise. The Servicer agrees to cooperate with the Trustee in effecting the termination of its responsibilities and rights as Servicer hereunder with respect to either or both Mortgage Loan Groups, including, without limitation, the transfer to the Trustee for the administration by it of all cash amounts that shall at the time be held by the Servicer that have been deposited by the Servicer in the Collection Account or the Certificate Account with respect thereto or thereafter received by the Servicer with respect to the affected Mortgage Loans. All reasonable costs and expenses (including attorneys' fees) incurred in connection with transferring the Mortgage Files to a successor Servicer, amending this Agreement to reflect the appointment of a successor as Servicer pursuant to this Section 8.01 or otherwise in connection with the assumption by a successor Servicer of the duties of the predecessor Servicer hereunder shall be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs and expenses. 83 89 Section 8.02. Trustee to Act; Appointment of Successor. On and after the time the Servicer receives a notice of full or partial termination pursuant to Section 8.01, the Trustee shall be the successor in all respects to the Servicer in its capacity as servicer under this Agreement with respect to the whole Trust or the affected Mortgage Loan Group, as appropriate and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, including without limitation, the obligation to make Monthly Advances and to pay Compensating Interest. As compensation therefor, the Trustee shall be entitled to such compensation as the Servicer would have been entitled to hereunder if no such notice of termination had been given. Notwithstanding the foregoing, the Trustee may, if it shall be unwilling so to act, or shall, if it is legally unable so to act, promptly appoint, or petition a court of competent jurisdiction to appoint, any established housing and home finance institution or any institution that regularly services home equity loans that is then servicing a home equity loan portfolio and having all licenses, permits and approvals required by applicable law, and having a net worth of not less than $10,000,000 as the successor to the Servicer hereunder with respect to the whole Trust or the affected Mortgage Loan Group, as appropriate, in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer hereunder; provided that the appointment of any such successor Servicer will not result in the qualification, reduction or withdrawal of the rating assigned to any Class of related Offered Certificates by any Rating Agency. Pending appointment of a successor to the Servicer hereunder, unless the Trustee is prohibited by law from so acting, the Trustee shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the Servicer hereunder. The Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The appointment of a successor Servicer shall not affect any liability of the predecessor Servicer that may have arisen under this Agreement prior to its termination as Servicer (including without limitation, any amount for a deductible amount pursuant to the last sentence of Section 3.04), nor shall any successor Servicer be liable for any acts or omissions of the predecessor Servicer or for any breach by such Servicer or the Seller of any of its representations or warranties contained herein or in any related document or agreement. Each of the Rating Agencies shall be given written notice of the appointment of a successor Servicer pursuant to this Section. Section 8.03. Notifications to Certificateholders. Upon any termination or appointment of a successor to the Servicer pursuant to this Article Eight, the Trustee shall give prompt written notice thereof to Certificateholders at their respective addresses appearing in the Certificate Register and to each Rating Agency. Within 60 days of obtaining actual knowledge of the occurrence of any Event of Default that remains uncured, the Trustee shall transmit by mail to all Certificateholders notice of such Event of Default. Section 8.04. Assumption or Termination of Sub-Servicing Agreements by the Trustee or any Successor Servicer. Upon the termination of the Servicer as servicer under this Agreement, the Trustee as successor to the Servicer hereunder or any other successor to the Servicer hereunder may, 84 90 subject to the terms of any related Sub-Servicing Agreement, in its sole and absolute discretion elect to assume or terminate any Sub-Servicing Agreement then in force and effect between the Servicer and the Sub-Servicer. Notwithstanding the foregoing, any termination fee due to a Sub-Servicer because of its termination by the Trustee hereunder shall be the responsibility of the terminated Servicer and not the Trustee. Upon the assumption of any Sub-Servicing Agreement, the Servicer agrees to deliver to the assuming party any and all documents and records relating to the applicable Sub-Servicing Agreement and an accounting of amounts collected and held by it and otherwise use its best reasonable efforts to effectuate the orderly transfer of the Sub-Servicing Agreement. ARTICLE NINE THE TRUSTEE Section 9.01. Duties of the Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If an Event of Default of which a Responsible Officer of the Trustee shall have actual knowledge shall have occurred (which has not been cured) and subject to the provisions of Section 9.13, the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee that are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they substantially conform to the requirements of this Agreement. If any such document or instrument is found not to conform to the requirements of this Agreement in a material manner, the Trustee shall, subject to the provisions of Section 9.13, take such action as it deems appropriate to have the document or instrument corrected, and if it is not corrected to the Trustee's reasonable satisfaction, the Trustee will provide notice thereof to the Certificateholders. No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: (a) prior to the occurrence of an Event of Default, and after the curing of all such Events of Default that may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates, filings or opinions furnished to the Trustee and conforming to the requirements of this Agreement; 85 91 (b) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of Certificates evidencing Voting Interests represented by all Certificates (or all affected Certificates, as appropriate) aggregating not less than 51% relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; and (d) the Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in clauses (a) and (b) of Section 8.01 unless a Responsible Officer obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer, the Holders of Certificates evidencing Voting Interests represented by all Certificates aggregating not less than 51%, as the case may be. The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement, except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement. Section 9.02. Certain Matters Affecting the Trustee. Except as otherwise provided in Section 9.01: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) The Trustee may consult with counsel and any advice obtained from counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement, unless the Person so requesting, ordering or directing 86 92 same shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; the right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of an Event of Default known to a Responsible Officer of the Trustee (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement, subject to the provisions of Section 9.13, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith in accordance with the direction of Holders of Certificates evidencing Voting Interests representing all Certificates (or all affected Certificates, as appropriate) aggregating not less than 51%; (e) Prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or documents, unless requested in writing to do so by Holders of Certificates evidencing Voting Interests represented by all Certificates (or all affected Certificates, as appropriate) aggregating not less than 51%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such cost, expense or liability as a condition to such proceeding; the reasonable expense of every such examination shall be paid by the Servicer or, if paid by the Trustee, shall be reimbursed by the Servicer upon demand; and nothing in this clause (e) shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Mortgagors; and (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian. The Trustee shall not be liable or responsible for the misconduct of the custodian of the Mortgage Files appointed with due care by the Trustee hereunder. Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the signature and authentication of the Trustee on the Certificates) shall be taken as the statements of the Servicer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (other than the signature and authentication of the Trustee on the Certificates and the signature of the Trustee on this Agreement) or of any Mortgage, Mortgage Loan or related document. The Trustee shall not be accountable for the use or application by the Servicer of any of the Certificates or of the proceeds of such 87 93 Certificates, or for the use or application of any funds paid to the Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Collection Account by the Servicer. Section 9.04. Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights as it would have if it were not Trustee. Section 9.05. Payment of the Trustee's Fees and Expenses. (a) On or before each Distribution Date occurring in October, beginning with the October 1997 Distribution Date, the Servicer shall pay to the Trustee without any right of reimbursement from the Trust or otherwise, an amount equal to the Trustee Fee, any reasonable expenses as agreed to by the Servicer and Trustee (including any fees and expenses of a co-trustee or separate trustee appointed under Section 9.10) and, with respect to the October 1997 Distribution Date, all loan file review fees, as compensation for all services rendered by the Trustee (and any such co-trustee or separate trustee) in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee (and any such co-trustee or separate trustee). The Trustee Fee and such expenses and loan file review fees (including any fees and expenses of a co-trustee or separate trustee appointed under Section 9.10) are an obligation solely of the Servicer and neither the Trustee nor any co-trustee or separate trustee appointed hereunder has or will have any lien on the Trust for payment of any such fees or expenses. It is anticipated that the Servicer will utilize a portion of the Monthly Servicing Fee for payment of such fees and expenses. (b) The Trust shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith or that is otherwise reimbursable to the Trustee by the Servicer pursuant to Section 9.05(a) above; provided, however, that the Trustee shall not refuse to perform any of its duties hereunder solely as a result of the failure of the Trust to pay or reimburse such expenses, disbursements or advances. The right of the Trustee to recover such amounts from the Trust shall be subordinate to the rights of the Holders of the Offered Certificates under this Agreement including, without limitation, to the prior payment in full of all amounts payable as of any Distribution Date. (c) The Servicer agrees to indemnify the Trustee from, and hold it harmless against, any and all losses and liabilities, damages, claims or expenses (including reasonable attorneys' fees) arising in respect of its acts or omissions in connection with this Agreement or the Certificates except to the extent the negligence, bad faith or intentional misconduct of the Trustee contributes to the loss, liability, damage, claim or expense. (d) This Section 9.05 shall survive the termination of this Agreement or the resignation or removal of the Trustee as regards rights accrued prior to such resignation or removal. Section 9.06. Eligibility Requirements for the Trustee. The Trustee hereunder shall at all times be a bank or other depository institution doing business under the laws of the United States or 88 94 any state thereof, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by federal or state authority and rated at least BBB by Standard & Poor's and Baa2 by Moody's. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.07. Section 9.07. Resignation or Removal of the Trustee. The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Servicer and each Rating Agency. Upon receiving such notice of resignation, the Servicer shall promptly appoint a successor trustee satisfying the criteria set forth in Section 9.06 by written instrument, in triplicate, one copy of which instrument shall be delivered to the resigning Trustee, one copy to the successor trustee and one copy to the Servicer. If no successor trustee shall have been so appointed and having accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 9.06 and shall fail to resign after written request therefor by the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or the Trustee shall fail to perform its obligations under this Agreement, then the Servicer shall remove the Trustee and appoint a successor trustee satisfying the criteria set forth in Section 9.06 by written instrument, in triplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor trustee as provided in Section 9.08. The provisions of Section 9.05 shall survive any such resignation or removal. Section 9.08. Successor Trustee. Any successor trustee appointed as provided in Section 9.07 shall execute, acknowledge and deliver to the Servicer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee. The Seller, the Servicer and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Trustee all such rights, powers, duties and obligations. 89 95 No successor Trustee shall accept appointment as provided in this Section unless at the time of such acceptance it shall be eligible under the provisions of Section 9.06. Upon acceptance of appointment by a successor trustee as provided in this Section, the Servicer shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register and to each Rating Agency. If the Servicer fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Servicer. Section 9.09. Merger or Consolidation of the Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee or substantially all of the Trustee's trust business, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 9.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 9.10. Appointment of Co-Trustee or Separate Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust or any Mortgaged Property may at the time be located, the Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights, indemnities and trusts as the Servicer and the Trustee may consider necessary or desirable. If the Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in the case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 9.06 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 9.08. Each of the Rating Agencies shall be given written notice of the appointment of a co-trustee or a separate trustee pursuant to this Section. Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (a) All rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such 90 96 rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (b) No trustee hereunder shall be held personally liable by reason of any act or omission of any other trustee hereunder; and (c) The Servicer and the Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee, except that following the occurrence of an Event of Default that has not been cured, the Trustee, acting alone may accept the resignation of or remove any separate or co-trustor. Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and copies thereof given to the Servicer. Any separate trustee or co-trustee may, at any time, constitute the Trustee its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. No appointment of any separate trustee or co-trustee shall absolve the Trustee of its duties and obligations under this Agreement. Section 9.11. Compliance with REMIC Provisions. The Trustee shall at all times act in such a manner in the performance of its duties hereunder as shall be necessary to prevent any REMIC Pool from failing to qualify as a REMIC and to prevent the imposition of a tax on the REMIC Pool. The Trustee shall: (a) prepare and file, or cause to be prepared and filed, such federal, state and local income tax and information returns or reports using the calendar year as the taxable year for the REMIC Pool when and as required by the REMIC Provisions and other applicable federal, state and local income tax laws, which returns or reports shall be signed by the Trustee or such other person as may be required thereby; (b) make an election, on behalf of each REMIC Pool, to be treated as a REMIC and make the appropriate designations, if applicable, in accordance with Section 9.16 on the federal income tax return of each REMIC Pool for its first taxable year, in accordance with the REMIC Provisions; (c) prepare and forward, or cause to be prepared and forwarded, to the Certificateholders all information reports, or furnish or cause to be furnished by telephone, mail, publication or other appropriate method such information, as and when required to be provided to 91 97 them in accordance with the Code; (d) exercise reasonable care not to allow the creation of any "interests" in any REMIC Pool within the meaning of Code Section 860D(a)(2) other than the interests represented by the REMIC III Certificates in the case of the REMIC III Pool, the REMIC II Interests in the case of the REMIC II Pool, the REMIC IF Interests in the case of the REMIC IF Pool, the REMIC IA Interests in the case of the REMIC IA Pool; and (e) within 30 days of the Startup Day, furnish or cause to be furnished to the Internal Revenue Service, on Form 8811 or as may otherwise be required by the Code, the name, title, address, and telephone number of the person that Certificateholders may contact for tax information relating to their Certificates (and the Trustee shall act as the representative of each REMIC Pool for this purpose), together with such additional information as may be required by such Form, and shall update such information at the time and in the manner required by the Code. Each Class R Certificateholder shall designate the Servicer, if permitted by the Code and applicable law, to act as "tax matters person" for the related REMIC Pool within the meaning of Treasury regulations Section 1.860F-4(d), and the Servicer is hereby designated as agent of each Class R Certificateholder for such purpose (or if the Servicer is not so permitted, the Holder of the related Class R Certificate shall be the tax matters person in accordance with the REMIC Provisions). Section 9.12. Trustee May Enforce Claims Without Possession of Certificates. All rights of action and claims under this Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceedings relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name or in its capacity as Trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders in respect of which such judgment has been recovered in accordance with the terms of this Agreement. Section 9.13. Exercise of Trustee Powers by Certificateholders. The Holders of Certificates evidencing Voting Interests represented by all Certificates (or by the affected Certificates in the case of an Event of Default described in clause (h) of Section 8.01 aggregating not less than 51% may direct the time, method and place of conducting any proceeding relating to the Trust or the Certificates or for any remedy available to the Trustee with respect to the Certificates or exercising any trust or power conferred on the Trustee with respect to the Certificates of the Trust provided that: (i) such direction shall not be in conflict with any rule of law or with this Agreement; (ii) the Trustee shall have been provided with indemnity satisfactory to it; and (iii) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction; provided, however, that the Trustee need not take any action that it determines might involve it in liability or may be unjustly prejudicial to the Holders not so directing. Section 9.14. Tax Returns. The Trustee shall maintain all information in its possession as may be required in connection with the preparation of all federal and, if applicable, state and local 92 98 income tax and information returns of each REMIC Pool (including, but not limited to, tax reporting under the REMIC Provisions for each REMIC Pool), and pursuant to Section 24874 of the California Revenue and Taxation Code and its successors, and shall prepare, execute and file as required all such returns. The Trustee shall include in the first federal income tax return the information required to be included therein under the REMIC Provisions, including, but not limited to, Treas. Reg. Section 1.860D-I(d)2) and Treas. Reg. Section 1.860F-4(b)(2). The Servicer shall report all required tax information to Mortgagors in accordance with applicable law. The Prepayment Assumption (as such term is defined in the Prospectus, dated as of September 15, 1997) for the Certificates shall be 24% HEP with respect to the Fixed Rate Group Certificates and 27% HEP with respect to the Adjustable Rate Group Certificates, as described in the Prospectus Supplement dated September 15, 1997 relating to the Offered Certificates. Section 9.15. Taxpayer Identification Number. The Trustee shall prepare and file with the Internal Revenue Service, on behalf of each REMIC Pool within the time period prescribed therefor, an application on IRS Form SS-4 for such REMIC Pool. The Trustee, upon receipt from the Internal Revenue Service of the Notice of Taxpayer Identification Number assigned to each REMIC Pool, shall promptly forward a copy of such notice to the Servicer. Section 9.16 Miscellaneous REMIC Provisions. (i) The Trustee shall elect that the REMIC IF, REMIC IA, REMIC II, and the REMIC III shall be treated as REMICs under Section 860D of the Code, as described in Section 9.11. Any inconsistencies or ambiguities in this Agreement or in the administration of the Trust shall be resolved in a manner that preserves the validity of such REMIC elections. (ii) The REMIC IF will be evidenced by (x) the Class IF-A1, Class IF-A2, Class IF-A3, Class IF-A4 and Class IF-B Certificates (the "REMIC IF Regular Interests"), which will be uncertificated and non-transferable and are hereby designated as the "regular interests" in the REMIC IF and (y) the Class R-IF Certificate, which is hereby designated as the single "residual interest" in the REMIC IF (the REMIC IF Regular Interests, together with the Class R-IF Certificate, the "REMIC IF Interests"). The REMIC IF Regular Interests shall be recorded on the records of the REMIC IF as being issued to and held by the Trustee on behalf of the REMIC II. (iii) The REMIC IA will be evidenced by (x) the Class IA Certificates (the "REMIC IA Regular Interests"), which will be uncertificated and non-transferable and are hereby designated as the "regular interests" in the REMIC IA and (y) the Class R-IA Certificate, which is hereby designated as the single "residual interest" in the REMIC IA (the REMIC IA Regular Interests, together with the Class R-IA Certificate, the "REMIC IA Interests"). The REMIC IA Regular Interests shall be recorded on the records of the REMIC IA as being issued to and held by the Trustee on behalf of the REMIC II. 93 99 (iv) The REMIC II will be evidenced by (x) the Class II-AF, Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, Class II-10F, Class II-MF, Class II-IO, Class II-AA, Class II-1A, Class II-2A, Class II-3A, Class II-4A, and Class II-MA Certificates (the "REMIC II Regular Interests"), which will be uncertificated and non-transferable and are hereby designated as the "regular interests" in the REMIC II and (y) the Class R-II Certificate, which is hereby designated as the single "residual interest" in the REMIC II (the REMIC II Regular Interests, together with the Class R-II Certificate, the "REMIC II Interests"). The REMIC II Regular Interests shall be recorded on the records of the REMIC II as being issued to and held by the Trustee on behalf of the REMIC III. (v) The Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class A-IO, Class M-1F, Class M-2F, Class B-1F, Class B-2F, Class A-1A, Class M-1A, Class M-2A, Class B-1A, and Class C Certificates, consisting of two components (the Class C-F Component and the Class C-A Component as defined in footnote 5 below), are hereby designated as "regular interests" with respect to the REMIC III and the Class R-III Certificate is hereby designated as the single "residual interest" with respect to the REMIC III. The Class R-III Certificate shall have no pass-through rate and shall have no principal balance. (vi) The Class IF-A1 Certificates shall have an initial principal balance equal to $9,000,000, the Class IF-A2 Certificates shall have an initial principal balance equal to $13,500,000, the Class IF-A3 Certificates shall have an initial principal balance equal to $4,500,000, and the Class IF-A4 Certificates shall have an initial principal balance equal to $13,500,000. The Class IF-B Certificates shall have an initial principal balance equal to the excess of (i) the aggregate principal balance of the Fixed Rate Group at the Cut-off Date over (ii) $40,500,000. On each Distribution Date principal collections on the Fixed Rate Group shall be allocated sequentially to the Class IF-B, Class IF-A1, Class IF-A2, Class IF-A3, and Class IF-A4 Certificates until the principal balance of each such class is reduced to zero. Realized Losses on the Fixed Rate Group shall be allocated sequentially to the Class IF-B, Class IF-A1, Class IF-A2, Class IF-A3 and Class IF-A4 Certificate until the principal balance of each such class is reduced to zero. The Class IF-A1, Class IF-A2, Class IF-A3, Class IF-A4 and Class IF-B Certificates shall each have Pass-Through Rates equal to the weighted net average Mortgage Loan Rate of the Fixed Rate Group. The Class R-IF Certificates shall have no principal balance and no pass-through rate and shall be entitled to only those distributable assets, if any, remaining in the REMIC IF on each Distribution Date after all amounts required to be distributed to the Class IF-A1, Class IF-A2, Class IF-A3, Class IF-A4 and Class IF-B Certificates and applicable Trust expenses have been paid. (vii) The Class IA Certificates shall have an initial principal balance equal to the principal balance of the Adjustable Rate Group at the Cut-off Date. On each Distribution Date principal collections on the Adjustable Rate Group shall be allocated to the Class IA Certificates. Realized Losses on the Adjustable Rate Group shall be allocated to the Class IA Certificates. The Class IA Certificates shall each have Pass-Through Rates equal to the weighted net average Mortgage Loan Rate of the Adjustable Rate Group. The Class R-IA 94 100 Certificates shall have no principal balance and no pass-through rate and shall be entitled to only those distributable assets, if any, remaining in the REMIC IA on each Distribution Date after all amounts required to be distributed to the Class IA Certificates and applicable Trust expenses have been paid. (viii) For purposes of this Section 9.16, the "Fixed Rate Turbo Amount" means with respect to any Distribution Date the amount of any Extra Principal Distribution Amount for the Fixed Rate Group for such Distribution Date. Any Fixed Rate Turbo Amount that is attributable to interest on the Fixed Rate Group will not be paid to the REMIC II Regular Interests, but a portion of the interest payable with respect to the Class II-MF Certificate which equals 1% of the Fixed Rate Turbo Amount will be payable as a reduction of the principal balances of the Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, and Class II-10F Certificates in the same manner in which the Fixed Rate Turbo Amount is allocated among the Class A-1F, Class A-2F, Class A-3F, Class A-F4, Class A-F5, Class A-F6, Class M-1F, Class M-2F, Class B-1F, and Class B-2F Certificates, respectively (and will be accrued and added to principal on the Class II-MF Certificate). Principal payments on the Fixed Rate Group shall be allocated 98% to the Class II-AF Certificate, 1% to the Class II-MF Certificate and 1% to the Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, and Class II-10F Certificates until paid in full. The aggregate amount of principal allocated to the Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, and Class II-10F Certificates shall be apportioned among such Classes in the same manner in which principal is payable with respect to the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class M-1F, Class M-2F, Class B-1F, and Class B-2F Certificates, respectively. Notwithstanding the foregoing, 98% and 2% of any principal payment on the Fixed Rate Group that are attributable to an Overcollateralization Release Amount attributable to the Fixed Rate Group shall be allocated to the Class II-AF and Class II-MF Certificates, respectively, until paid in full, except that an amount otherwise allocable to the Class II-MF Certificates not exceed to any Net Fixed Rate Excess (as defined in footnote (8)), not previously applied under this sentence, shall be allocated to the REMIC II Interest(s) that would have received such allocation but for the limitation under footnote (8) below. Realized Losses on the Fixed Rate Group shall be applied such that after all distributions have been made on such Distributable Date the following REMIC II Regular Interests have the following principal balances: Class II-AF-98% of the principal balances of the Fixed Rate Group, Class II-1F-1% of the principal balance of the Class A-1F Certificates, Class II-2F-1% of the principal balance of the Class A-2F Certificates, Class II-3F-1% of the principal balance of the Class A-3F Certificates, Class II-4F-1% of the principal balance of the Class A-4F Certificates, Class II-5F-1% of the principal balance of the Class A-5F Certificates, Class II-6F-1% of the principal balance of the Class A-6F Certificates, Class II-7F-1% of the principal balance of the Class M-1F Certificates, Class II-8F-1% of the principal balance of the Class M-2F Certificates, Class II-9F-1% of the principal balance of the Class B-1F Certificates, Class II-10F-1% of the principal balance of the Class B-2F Certificates, and Class II-MF the principal balance of the Fixed Rate Group less an amount equal to the sum of the principal balances of the Class II- 95 101 AF, Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, and Class II-10F. Similarly, for purposes of this Section 9.16, the "Adjustable Rate Turbo Amount" means with respect to any Distribution Date the amount of any Extra Principal Distribution Amount for the Adjustable Rate Group for such Distribution Date. Any Adjustable Rate Turbo Amount that is attributable to interest on the Adjustable Rate Group will not be paid to the REMIC II Regular Interests, but a portion of the interest payable with respect to the Class II-MA Certificate which equals 1% of the Adjustable Rate Turbo Amount will be payable as a reduction of the principal balances of the Class II-1A, Class II-2A, Class II-3A, Class II-4A and Class II-Truncated Adjustable Principal Certificates in the same manner in which the Adjustable Rate Turbo Amount is allocated among the Class A-1A, Class M-1A, Class M-2A, and Class B-1A Certificates, respectively (and will be accrued and added to principal on the Class II-MA Certificate). Principal payments on the Adjustable Rate Group shall be allocated 98% to the Class II-AA Certificates, 1% to the Class II-MA Certificates, and 1% to the Class II-1A, Class II-2A, Class II-3A, Class II-4A and Class R-III Certificates (to the extent the principal of which is attributable to such Mortgage Loan Group) until paid in full. The aggregate amount of principal allocated to the Class II-1A, Class II-2A, Class II- 3A, Class II-4A and Class II-Truncated Adjustable Principal Certificates shall be apportioned among such Classes in the same manner in which principal is payable with respect to the Class A-1A, Class M-1A, Class M-2A, Class B-1A and Class R-III (to the extent the principal of which is attributable to such Mortgage Loan Group) Certificates, respectively. Notwithstanding the foregoing, 98% and 2% of any principal payments on the Adjustable Rate Group that are attributable to an Overcollateralization Release Amount attributable to the Adjustable Rate Group shall be allocated to the Class II-AA and Class II-MA Certificates, respectively, until paid in full, except that an amount otherwise allocable to the Class II-MA Certificates not exceed to any Net Adjustable Excess (as defined in footnote (8)), not previously applied under this sentence, shall be allocated to the REMIC II Interest(s) that would have received such allocation but for the limitation under footnote (8) below. Realized Losses on the Adjustable Rate Group shall be applied such that after all distributions have been made on such Distributable Date the following REMIC II Regular Interests have the following principal balances: Class II-AA-98% of the principal balances of the Adjustable Rate Group, Class II-1A-1% of the principal balance of the Class A-1A Certificates, Class II-2A-1% of the principal balance of the Class M-1A Certificates, Class II-3A-1% of the principal balance of the Class M-2A Certificates, Class II-4A-1% of the principal balance of the Class B-1A Certificates, Class II-Truncated Principal-1% of the principal balance of the Class R-III Certificates (to the extent the principal of which is attributable to such Mortgage Loan Group) and Class II-MA of the principal balance of the Adjustable Rate Group less an amount equal to the sum of the principal balances of the Class II-AA, Class II-1A, Class II-2A, Class II-3A, and Class II-4A Certificates. The REMIC II Interests will have the following designations and pass-through rates, and distributions of principal and interest thereon shall be allocated to the Certificates in the following manner: 96 102
REMIC II INITIAL PASS-THROUGH ALLOCATION ALLOCATION INTERESTS BALANCE RATE OF PRINCIPAL OF INTEREST --------- ------- ------------ ------------ ----------- II-AF $174,237,135.54 (1) (3) (4), (5a) II-1F $630,000.00 (1) (3) (4), (5a) II-2F $207,900.00 (1) (3) (4), (5a) II-3F $250,000.00 (1) (3) (4), (5a) II-4F $100,000.00 (1) (3) (4), (5a) II-5F $120,000.00 (1) (3) (4), (5a) II-6F $150,000.00 (1) (3) (4), (5a) II-7F $97,780.00 (1) (3) (4), (5a) II-8F $88,890.00 (1) (3) (4), (5a) II-9F $80,000.00 (1) (3) (4), (5a) II-10F $53,350.00 (1) (3) (4),(5a) II-MF $1,777,939.91 (1) (3) (4), (5a) Total Fixed Rate 177,792,995.45 II-AA $319,818,182.76 (2) (3) (4),(5b) II-1A $2,447,580.00 (2) (3) (4), (5b) II-2A $277,390.00 (2) (3) (4), (5b) II-3A $277,390.00 (2) (3) (4), (5b) II-4A $261,090.00 (2) (3) (4), (5b) II-MA $3,263,451.69 (2) (3) (4), (5b) Total Adjustable Rate $326,345,084.45 II-IO $0.00 (1) N/A Class A-IO Class R-II Certificate $0.00 N/A N/A N/A (6)
- ------------- (1) The pass-through rate ("Pass-Through Rate") on these REMIC II Regular Interests shall at any time of determination equal the weighted average of the Class IF-B Pass-Through Rate and the excess of each of the Class IF-A1 Pass-Through Rate, Class IF-A2 Pass-Through Rate, Class IF-A3 Pass-Through Rate, and Class IF-A4 Pass-Through Rate over (a) 7.0% for the first 36 Distribution Dates and (b) 0.0% thereafter. 97 103 Interest on the Class II-IO will equal 7.0% per annum of the aggregate of the principal balances of the Class IF-A-1, Class IF-A2, Class IF-A3, and Class IF-A4 Certificates for the first 36 Distribution Dates and 0.0% thereafter. If there are any prepayment interest shortfalls with respect to a Fixed Rate Group not covered by Compensating Interest for the Fixed Rate Group, such shortfall will proportionally reduce the interest accrued on the Class II-AF, Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, Class II-10F, Class II-MF, and Class II-IO Certificates. (2) The pass-through rate ("Pass-Through Rate") on these REMIC II Regular Interests shall at any time of determination equal the weighted net average Mortgage Loan Rate in the Adjustable Rate Group. If there are any prepayment interest shortfalls with respect to the Adjustable Rate Group not covered by Compensating Interest for the Adjustable Rate Group, such shortfall will proportionally reduce the interest accrued on the Class II-AA, Class II-1A, Class II-2A, Class II-3A, Class II-4A, and Class II-MA Certificates. (3) Principal attributable to the Fixed Rate Group will be allocated to and apportioned among the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A-6F, Class M-1F, Class M-2F, Class B-1F, and Class B-2F Certificates in the same proportion as principal is payable with respect to such Certificates pursuant to Section 5.01, except that a portion of such principal in an amount equal to the Overcollateralization Release Amount related to the Fixed Rate Group shall be allocated to the Class C Certificates until the balance thereof is zero and then to the Class R-III Certificate and all principal will be allocated to the Class C Certificates after the Certificate Principal Balance of the Fixed Rate Certificates has been reduced to zero until its Certificate Principal Balance is reduced to zero, and then to the Class R-III Certificate. Similarly, principal attributable to the Adjustable Rate Group will be allocated to and apportioned among the Class A-1A, Class M-1A, Class M-2A, Class B-1A and Class R-III Certificates in the same proportion as principal is payable with respect to such Certificates pursuant to Section 5.01, except that a portion of such principal in an amount equal to the Adjustable Rate Overcollateralization Release Amount related to the Adjustable Rate Group shall be allocated to the Class C Certificates until the balance thereof is zero and then to the Class R-III Certificate and all principal will be allocated to the Class C Certificates after the Certificate Principal Balance of the Adjustable Rate Certificates has been reduced to zero, and then to the Class R-III Certificates. (4) Except as provided in Note 5, interest on the Class II-AF, Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, Class II-10F and Class II-MF Certificates will be allocated among the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A- 6F, Class M-1F, Class M-2F, Class B-1F and Class B-2F Certificates in the same proportion as interest is payable on such Certificates pursuant to Section 5.01(a). Similarly, except as provided in Note 5, interest on the Class II-AA Certificates, Class II-1A, Class II-2A, Class II-3A, Class II-4A and Class II-MA Certificates will be allocated to the Class A-1A, Class M-1A, Class M-2A and Class B-1A Certificates in the same proportion as interest is payable on such Certificates pursuant to Section 5.01(a). To the extent interest is paid on the REMIC II Regular Interests in excess of that payable to the Certificates (other than the Residual Certificates), as interest or principal, such interest shall be payable to the Class R-III Certificates. (5) (a) Any interest with respect to this REMIC II Interest in excess of the product of (i) two times the weighted average coupon of the Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, Class II-10F, and Class II-MF Certificates, where each of such Classes, other than the Class II-MF Certificate, is first subject to a cap and floor equal to the Class A-1F, Class A-2F, Class A-3F, Class A-4F, Class A-5F, Class A- 6F, Class M-1F, Class M-2F, Class B-1F, and Class B-2F, respectively, and the Class II-MF Certificate is subject to a cap equal to 0%, and (ii) the principal balance of this REMIC II Interest, shall not be allocated to the 98 104 Fixed Rate Certificates but will be allocated to the Class C Certificates as a separate component (the "Class C-F Component"). (b) Any interest with respect to this REMIC II Interest in excess of the product of (i) two times the weighted average coupon of the Class II-1A, Class II-2A, Class II-3A, Class II-4A, and Class II-MA Certificates, where the Class II-1A, Class II-2A, Class II-3A and Class II-4A is first subject to a cap and floor equal to the Class A-1A, Class M-1A, Class M-2A, and Class B-1A, respectively, and the Class II-MA Certificate is subject to a cap equal to 0%, and (ii) the principal balance of this REMIC II Interest, shall not be allocated to the Adjustable Rate Certificates but will be allocated to the Class C Certificates as a separate component (the "Class C-A Component"). (6) On each Distribution Date, available funds, if any, remaining in the REMIC II after payments of interest and principal, as designated above, will be distributed to the Class R-II Certificate. On each Distribution Date, available funds, if any, remaining in the REMIC III after payments of interest and principal on the Certificates (other than the Class R-III Certificates) will be distributed to the Class R-III Certificates (7) On each Distribution Date with respect to a Mortgage Loan Group, to the extent that any related Monthly Excess Interest Amount is applied to cover Carry Forward Shortfalls on the related Class A Certificates and the interest allocable to the related Class C Component is not otherwise reduced for such amount due to an allocation of Realized Losses, the related Class C Component shall be reduced. (8) To the extent that 1% of the Fixed Rate Turbo Amount exceeds (after consideration of the addition of the Fixed Rate Excess, if any) the interest payable with respect to the Class II-MF Certificate, such excess (the "Net Fixed Rate Excess") will not be payable as a reduction of the principal balance of the Class II-1F, Class II-2F, Class II-3F, Class II-4F, Class II-5F, Class II-6F, Class II-7F, Class II-8F, Class II-9F, and Class II-10F Certificates (or accrued and added to principal on the Class II-MF Certificates). To the extent that 1% of the Adjustable Rate Turbo Amount exceeds (after consideration of the addition of the Fixed Rate Excess, if any) the interest payable with respect to the Class II-MA Certificate, such excess (the "Net Adjustable Rate Excess") will not be payable as a reduction of the principal balance of the Class II-1A, Class II-2A, Class II-3A, and Class II-4A Certificates (or accrued and added to principal on the Class LT-MA Certificates). (ix) The Startup Day is hereby designated as the "startup day" of each of REMIC IF, REMIC IA, REMIC II, REMIC III within the meaning of Section 860G(a)(9) of the Code. The "latest possible maturity date" for purposes of Treasury Regulation Section 1.860G-1(a)(4)(iii) for the regular interests are as follows: for the Class A-1F Certificates, the Distribution Date in August, 2013; for the Class A-2F Certificates, the Distribution Date in November, 2016; for the Class A-3F Certificates, the Distribution Date in November, 2024; for the Class A-4F Certificates, the Distribution Date in February, 2026; for the Class A-5F Certificates, the Distribution Date in September, 2027; for the Class A-6F Certificates, the Distribution Date in September, 2027; for the Class A-IO Certificates, the Distribution Date in October, 2000; for the Class M-1F Certificates, the Distribution Date in September, 2027; for the Class M-2F Certificates, the Distribution Date in September, 2027; for the Class B-1F Certificates, the Distribution Date in September, 2027; for the Class B-2F Certificates, the Distribution Date in September, 2027; for the Class A-1A Certificates, the Distribution Date in September, 2027; for the Class M-1A Certificates, the Distribution Date in September, 2027; for the Class M-2A Certificates, the Distribution Date in September, 2027; for the Class B-1A Certificates, the Distribution Date in September, 99 105 2027 and for the REMIC IF Regular Interests, REMIC 1A Regular Interests and REMIC II Regular Interests, the Distribution Date in September, 2027. ARTICLE TEN TERMINATION Section 10.01. Termination Upon Purchase or Liquidation of Mortgage Loans. Subject to Section 10.02, the respective obligations and responsibilities hereunder of the Servicer, the Seller and the Trustee (other than the obligation of the Trustee to make certain payments to Certificateholders after the final Distribution Date and the obligation of the Seller to send certain notices as hereinafter set forth) and the Trust created hereby shall terminate with respect to all Certificates or either the Fixed Rate Group Certificates or Adjustable Rate Group Certificates, respectively, upon the last action required to be taken by the Trustee on the final Distribution Date pursuant to this Article following the earlier of (a) the purchase by the Servicer of all Mortgage Loans or all Mortgage Loans in the Fixed Rate Group or the Adjustable Rate Group, and all property acquired in respect of any such Mortgage Loan remaining in the Trust at a price equal to the sum of (x) 100% of the Principal Balance of each such Mortgage Loan (other than any Mortgage Loan as to which title to the underlying Mortgaged Property has been acquired and whose fair market value is included pursuant to clause (y) below) as of the final Distribution Date, and (y) the fair market value of such acquired Mortgaged Property (determined as described below), plus accrued and unpaid interest at the applicable Mortgage Loan Rate on the Principal Balance of each such Mortgage Loan (including any Mortgage Loan as to which title to the underlying Mortgaged Property has been acquired) through the end of the Collection Period preceding the date of repurchase and the aggregate amount of unreimbursed Servicing Advances made in respect of any such Mortgage Loan, less any payments of principal and interest received during such Collection Period in respect of each such Mortgage Loan, or (b) the final payment or other liquidation of the Principal Balance of the last Mortgage Loan remaining in the Trust or either Mortgage Loan Group or the disposition of all property remaining in the Trust or either Mortgage Loan Group acquired upon foreclosure or deed in lieu of foreclosure of any such Mortgage Loan; provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, who are living on the Closing Date. The fair market value of Mortgaged Properties pursuant to the foregoing clause (y) shall be determined by the Servicer as of the close of business on the third Business Day next preceding the date upon which notice of any such termination is furnished to Certificateholders pursuant to the third paragraph of this Section 10.01. The right of the Servicer to purchase all outstanding Mortgage Loans or all Mortgage Loans in the Fixed Rate Group or the Adjustable Rate Group, pursuant to clause (a) above is exercisable only on or after the related Clean-up Call Date. If such right is exercised, the Servicer shall remit the purchase price specified in this Section to the Trustee for deposit in the Certificate Account pursuant to Section 3.02 (e) on or before the related Deposit Date and the Trustee, if it has received the Mortgage Files pursuant to Section 2.01, shall, promptly following remittance of such purchase price, release to the Servicer the Mortgage Files pertaining to the Mortgage Loans being purchased 100 106 and all other documents furnished by the Servicer as are necessary to transfer the Trustee's interest in the Mortgage Loans to the Servicer. Notice of any termination, specifying the Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the related Certificateholders may surrender their Certificates to the Trustee for payment of the final distribution and cancellation shall be given promptly by the Trustee (upon receipt of written directions from the Servicer, if the Servicer is exercising its right to purchase such assets of the Trust as provided above, given not later than the 15th day of the month preceding the month of such final distribution) by letter to the Certificateholders mailed not earlier than the first day and not later than the 10th day of the month of such final distribution specifying (a) the Distribution Date upon which final distribution of the related Certificates will be made upon presentation and surrender of such Certificates at the office or agency of the Trustee therein designated, (b) the amount of any such final distribution and (c) that the Record Date otherwise applicable to such Distribution Date is not applicable, distributions being made only upon presentation and surrender of such Certificates at the office or agency of the Trustee therein specified. In the event written directions are delivered by the Servicer to the Trustee as described in the preceding sentence, the Servicer shall deposit in the Certificate Account on or before the related Deposit Date for such final distribution in immediately available funds an amount equal to the purchase price for such assets of the Trust computed as above provided. Any such deposit by the Servicer shall be in lieu of the deposit otherwise required to be made in respect of such Distribution Date pursuant to Section 3.02 and the related distribution thereof to the Certificateholders. If the termination of the Trust or repurchase of either Mortgage Loan Group is in connection with a purchase of the assets of the Trust by the Servicer pursuant to clause (a) of the first paragraph in this Section, the Trustee shall cause to be distributed to related Certificateholders on the final Distribution Date an amount equal to (i) as to the Fixed Rate Group Certificates, and upon presentation and surrender of the related Certificates, in proportion to their respective Percentage Interests the related Aggregate Certificate Principal Balance, and the Monthly Interest, (ii) as to the Adjustable Rate Group Certificates, and upon presentation and surrender of the related Certificates, in proportion to their respective Percentage Interests, the related Aggregate Certificate Principal Balance and Monthly Interest, (iii) as to the Servicer, any additional servicing compensation with respect to such Distribution Date (other than amounts retained to meet claims) after application pursuant to the clauses (i) and (ii) above and payment to the Servicer of any amounts to which it is entitled as reimbursement hereunder and (iv) as to the Class C Certificateholders and upon presentation and surrender of the Class C Certificate, any amounts remaining after application pursuant to the preceding clauses (i) through (iii); provided, however, that if the fair market value of any acquired property referred to in, or covered by, clause (a)(y) of the first paragraph of this Section is less than the Principal Balance of the related Mortgage Loan, then the excess of such Principal Balance over such fair market value shall be allocated in reduction of the amounts otherwise distributable on the final Distribution Date in the following order of priority: first, to the Holders of the Class R Certificates, second to the Holders of the Class C Certificate and third to the Holders of the related Offered Certificates, pro rata based on the Certificate Principal Balances thereof on such Distribution Date. The distribution on the final Distribution Date in connection with the purchase by the Servicer of the assets in the Trust shall be in lieu of the distribution otherwise 101 107 required to be made on such Distribution Date in respect of each Class of Certificates. The Servicer shall provide in writing to the Trustee the information with respect to the amounts so to be paid. In the event that all of the Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the fifth day following such final Distribution Date, the Trustee shall on such date cause all funds in the Certificate Account not distributed in the final distribution to Certificateholders to be withdrawn therefrom and credited to the remaining Certificateholders by holding such funds uninvested in a separate escrow account for the benefit of such Certificateholders and the Servicer (if the Servicer exercised its right to purchase the assets of the Trust as provided above) or the Trustee (in any other case) shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Certificates shall not have been surrendered for cancellation, any funds deposited in such escrow account and remaining unclaimed shall be paid by the Trustee to the Servicer and thereafter Certificateholders shall look only to the Servicer with respect to any claims in respect of such funds. Section 10.02. Additional Termination Requirements. In the event the Servicer exercises its purchase option as provided in Section 10.01, each REMIC Pool shall be terminated in accordance with the following additional requirements, and the Trustee shall receive an Opinion of Counsel to the effect that the termination of such REMIC Pool (i) will constitute a "qualified liquidation" of each REMIC Pool within the meaning of Code Section 860F(a)(4)(A), and (ii) will not subject such REMIC Pool to tax or cause such REMIC Pool to fail to qualify as a REMIC at any time that any Certificates are outstanding. (i) Within 90 days prior to the final Distribution Date set forth in the notice of intention to purchase the Mortgage Loans of a Mortgage Loan given by the Servicer under Section 10.01, the Trustee, at the direction of the Servicer, shall adopt a plan of complete liquidation of each REMIC Pool being liquidated on behalf of the related REMIC within the meaning of Code Section 860F(a)(4)(A)(8), which shall be evidenced by such notice; and (ii) At or after the time of adoption of such a plan of complete liquidation and at or prior to the final Distribution Date, the Trustee shall sell all of the assets of each REMIC Pool being liquidated to the Servicer for cash at the purchase price specified in Section 10.01 and shall distribute such cash in the manner specified in Section 10.01. ARTICLE ELEVEN MISCELLANEOUS PROVISIONS Section 11.01. Amendment. This Agreement may be amended from time to time by the Servicer, the Seller and the Trustee, without the consent of any of the Certificateholders, (a) to cure any error or any ambiguity or to correct or supplement any provisions herein which may be inconsistent with any other provisions herein; (b) to add to the duties or obligations of the Servicer hereunder; (c) to maintain or improve any rating then assigned by any Rating Agency to any of the Certificates; or (d) to add any other provisions with respect to matters or questions arising under this Agreement, as the case may be (including specifically amendments or supplements pursuant to the 102 108 second paragraph of Section 6.02(b)); (e) to modify, eliminate or add to any of its provisions to such extent as shall be necessary to maintain the qualification of any REMIC Pool as a REMIC at all times that any Certificates are outstanding or to avoid or minimize the risk of the imposition of any tax on any REMIC Pool pursuant to the Code that would be a claim against such REMIC Pool, provided that in the case of this clause (e) the Trustee has received an Opinion of Counsel to the effect that such action is necessary or desirable to maintain such qualification or to avoid or minimize the risk of the imposition of any such tax; or (f) to modify, eliminate or add to the provisions of Section 6.02(c) or any other provisions hereof restricting transfer of Class R Certificates; provided that in all such cases the Trustee has obtained written confirmation from each Rating Agency that any such modifications to this Agreement will not result in a qualification, reduction or withdrawal of the rating assigned to any Class of Offered Certificates by such Rating Agency and has received an Opinion of Counsel to the effect that any such modifications to this Agreement do not give rise to a risk that any REMIC Pool or any of the Certificateholders will be subject to a tax caused by a transfer to a Disqualified Organization; provided, further, that in all such cases such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder. This Agreement may also be amended from time to time by the Servicer, the Seller and the Trustee, with the consent of the Holders of Certificates evidencing Voting Interests of each Class affected thereby aggregating not less than 51%, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Holders of Certificates of such Class; provided, however, that no such amendment shall (a) reduce in any manner the amount of, or delay the timing of, collections of payments on Mortgage Loans or distributions which are required to be made on any Certificate without the consent of the Holder of such Certificate or (b) reduce the aforesaid percentage of each Class the Holders of which are required to consent to any such amendment, without the consent of the Holders of all Certificates of such Class then outstanding. Promptly after the execution of any such amendment or consent pursuant to the next preceding paragraph, the Trustee shall furnish written notification of the substance of such amendment to each affected Certificateholder and each Rating Agency. It shall not be necessary for the consent of Certificateholders under this Section to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. Prior to the execution of any amendment to this Agreement and the Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement. The Trustee may, but shall not be obligated to, enter into any such amendment that affects the Trustee's own rights, duties or immunities under this Agreement. 103 109 Section 11.02. Recordation of Agreement. This Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the Mortgaged Properties are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Servicer, at its expense but only upon, determination of the Servicer accompanied by an Opinion of Counsel to the effect that such recordation is legally required to protect the Trustee's interest in the Mortgage Loans. For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 11.03. Limitation on Rights of Certificateholders. The death or incapacity of any Certificateholder shall not operate to terminate this Agreement, the Trust or any REMIC established pursuant to Section 3.01, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust or any REMIC established pursuant to Section 3.01, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Except as otherwise expressly provided herein, no Certificateholder, solely by virtue of its status as a Certificateholder, shall have any right to vote or in any manner otherwise control the operation and management of the Trust or any REMIC established pursuant to Section 3.01, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. No Certificateholder, solely by virtue of its status as a Certificateholder, shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates evidencing Voting Interests represented by all Certificates (or all affected Certificates, as appropriate) aggregating not less than 51% shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue or by availing itself or themselves of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common 104 110 benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.04. Governing Law. This Agreement shall be construed in accordance with the laws of the State of California (without regard to conflict of laws principles and the application of the laws of any other jurisdiction), and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 11.05. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given when delivered to (a) in the case of the Seller and the Servicer, at 350 South Grand Avenue, Los Angeles, California 90071, Attention: Gregory J. Witherspoon; (b) in the case of the Trustee, at the Corporate Trust Office at 3 Park Plaza, 16th Floor, Irvine, California 92614, Attention: Aames Capital Corporation, Series 1997-C; (c) in the case of Fitch, to Fitch Investors Service, Inc., One State Street Plaza, New York, New York 10004, Attention: Mortgage Surveillance Group; and (d) in the case of Moody's, to Moody's Investors Service Inc., 99 Church Street, New York, New York 10007, Attention: Residential Mortgage Pass- Through Monitoring, or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at its address shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Any notice or other document required to be delivered or mailed by the Trustee to any Rating Agency shall be given on a best efforts basis and only as a matter of courtesy and accommodation and the Trustee shall have no liability for failure to deliver such notice or document to any such Rating Agency. Section 11.06. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 11.07. Assignment. Notwithstanding anything to the contrary contained herein, except as provided in Sections 7.02, 7.04 and 7.05, this Agreement may not be assigned by the Seller or the Servicer without the prior written consent of the Holders of Certificates evidencing not less than 66% of the Voting Interests of all Certificates. 105 111 Section 11.08. Certificates Nonassessable and Fully Paid. The parties agree that the Certificateholders shall not be personally liable for obligations of the Trust, that the beneficial ownership interests represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that Certificates upon execution, authentication and delivery thereof by the Trustee pursuant to Section 2.06 are and shall be deemed fully paid. [Signatures follow.] 106 112 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers, all as of the day and year first above written. AAMES CAPITAL CORPORATION, as Seller and Servicer By: /s/ Mark Elbaum ---------------------------------------- Name: Mark Elbaum Title: Senior Vice President -- Finance BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee and not in its individual capacity By: /s/ Whitney Iger ---------------------------------------- Name: Whitney Iger Title: Assistant Secretary 113 State of California ) ) ss.: County of Los Angeles ) On the 19th day of September 1997, before me, a notary public in and for of the State of California, personally appeared Mark Elbaum, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in the capacity or capacities indicated in the within instrument, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Michelle Adams ----------------------------------------- Notary Public [Notary Seal] 114 State of California ) ) ss.: County of Los Angeles ) On the 19th day of September 1997, before me, a notary public in and for of the State of California, personally appeared Whitney Iger, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in the capacity or capacities indicated in the within instrument, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Catherine Emmett ----------------------------------------- Notary Public [Notary Seal] 115 Schedule I List of Sub-Servicers Advanta Mortgage Corp. USA Wendover Funding, Inc. Schedule I 116 EXHIBIT A FORMS OF CERTIFICATES [Forms to be Inserted When Final Document is Distributed] A-1 117 EXHIBIT B MORTGAGE LOAN SCHEDULE B-1 118 EXHIBIT C FORM OF ANNUAL STATEMENT AS TO COMPLIANCE The undersigned, __________, of Aames Capital Corporation (the "Servicer"), in its capacity as Servicer under that certain Pooling and Servicing Agreement dated as of September 1, 1997 (the "Pooling and Servicing Agreement") between Aames Capital Corporation, as Seller and Servicer, and Bankers Trust Company of California, N.A., as Trustee, does hereby certify pursuant to Section 3.09 of the Pooling and Servicing Agreement that as of the ___ day of ____________, 199_: (a) a review of the activities of the Servicer for the year ended December 31, 199_ and of its performance under the Pooling and Servicing Agreement has been made under my supervision, and (b) to the best of my knowledge, based on such review, the Servicer has fulfilled all of its material obligations under the Pooling and Servicing Agreement throughout such year. IN WITNESS WHEREOF, I have hereunto signed my name as of this ____day of ___________, 199_. ----------------------------------------- Name: Title: C-1 119 EXHIBIT D FORM OF AFFIDAVIT PURSUANT TO SECTION 860E(e)(4) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED STATE OF ____________________ ) ) ss.: COUNTY OF ___________________ ) [NAME OF OFFICER], being first duly sworn, deposes and says: 1. That he is [Title of Officer] of [Name of Investor] (the "Investor"), a [savings institution] [corporation] duly organized and existing under the laws of [the State of __________] [the United States], on behalf of which he makes this affidavit. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement as defined in the Class [R-IA] [R-IF] [R-II] [R-III] (the "Class R Certificate"). 2. That the Investor's Taxpayer Identification Number is [__________]. 3. That the Investor is not a "Disqualified Organization" within the meaning of Section 860E(e)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), or an agent of a Disqualified Organization (including a broker, nominee or middleman) and will not be a "Disqualified Organization" as of [date of transfer], and that the Investor is not acquiring a Class R Certificate of the Aames Mortgage Trust 1997-C Mortgage Loan Pass-Through Certificates, (the "Class R Certificate") for the account of, or as an agent (including a broker, nominee or middleman) of any entity as to which the Investor has not received an affidavit substantially in the form of this affidavit. For these purposes, a "Disqualified Organization" means the United States, any state or political subdivision thereof, any foreign government, any international organization, any agency or instrumentality of any of the foregoing (other than an instrumentality if all of its activities are subject to tax and a majority of its board of directors is not selected by such governmental entity), any cooperative organization furnishing electrical energy or providing telephone service to persons in rural areas as described in Code Section 1381(a)(2)(c), or any organization (other than a farmers' cooperative described in Code Section 521) that is exempt from federal income tax unless such organization is subject to the tax on unrelated business income imposed by Code Section 511. 4. That the Investor is not (i) an entity that holds Class R Certificates as nominee to facilitate the clearance and settlement of such Class R Certificates through electronic book-entry changes in accounts of participating organizations (a "Book-Entry Nominee"), (ii) an individual, corporation, partnership or other person unless such transferee (A) is not a Foreign Person or (B) is a Foreign Person that will hold such Class R Certificate in connection with the conduct of a trade or business within the United States and has furnished the transferor and the Trustee with an effective Internal Revenue Service Form 4224 or (C) is a Foreign Person that has delivered to both the transferor and the Trustee an opinion of a nationally recognized tax counsel to the effect that the transfer of a Class D-1 120 R Certificate to it is in accordance with the requirements of the Code and the regulations promulgated thereunder and that such transfer of a Class R Certificate will not be disregarded for federal income tax purposes (any such person who is not covered by clause (A), (B) or (C) above being referred to herein as a "Non-permitted Foreign Holder") or (iii) a Person that is an employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, or any Person that is an individual retirement account or employee benefit plan, trust or account subject to Section 4975 of the Code (an "ERISA Plan") or an entity, including an insurance company separate account or general account, whose underlying assets include ERISA Plan assets by reason of an ERISA Plan's investment in the entity or a Person investing the assets of an ERISA Plan or such an entity, whether as nominee, trustee, agent or otherwise (an "ERISA Prohibited Holder"). 5. That the Investor agrees to any such amendments of the Pooling and Servicing Agreement as may be required to further effectuate the restrictions on transfer of the Class R Certificate to such a Disqualified Organization or a Book-Entry Nominee or a Non-permitted Foreign Holder or an ERISA Prohibited Holder. 6. That the Investor has no intent or purpose to impede the assessment or collection of any federal, state or local income taxes legally required to be paid with respect to the Class R Certificate and will not transfer the Class R Certificate to any Person that it has reason to believe has the intention to impede the assessment or collection of such taxes. 7. The Investor has been advised of, understands and acknowledges that under the Code, a substantial tax would be imposed on a "pass-through entity" holding a Class R Certificate if at any time during the taxable year of the pass-through entity a Person that is a Disqualified Organization is the record holder of an interest in such entity. (For this purpose, a "pass-through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives and, except as may be provided in Treasury Regulations, persons holding interests in pass through entities as a nominee for another Person). A pass-through entity shall be relieved of liability for the tax if it had received from such Person an affidavit (in substantially the same form as this affidavit) that such Person is not a Disqualified Organization and the entity had no actual knowledge that the affidavit was false. The Investor will advise the Trustee and the Servicer if it becomes a pass-through entity or if it is a pass-through entity, if any of the interest holders are or become Disqualified Persons. 8. The Investor has reviewed the provisions of Section 6.02 of the Agreement and understands the legal consequences of the acquisition of a Class R Certificate including, without limitation, the restrictions on subsequent transfers. The Investor expressly agrees to be bound by and to abide by the provisions of Section 6.02 of the Agreement, as such Section may be amended from time to time. 9. The Investor agrees to require an affidavit substantially similar to this affidavit from any Person to whom the Investor attempts to transfer its Class R Certificate including any Person with respect to which the Investor is then acting as nominee, trustee or agent, and in connection with any transfer by a Person for whom the Investor is acting as nominee, trustee or agent, and the Investor D-2 121 will not transfer its Class R Certificate to be transferred to any Person that the Investor knows is a Disqualified Organization. 10. The Investor is acquiring the Class R Certificate either (i) for its own account or (ii) as nominee, trustee or agent for another Person and has attached hereto an affidavit from such Person in substantially the same form as this affidavit. If clause (ii) of the preceding sentence is applicable, such Person is not a Disqualified Organization and the Investor has no knowledge that any such affidavit from such Person is false. IN WITNESS WHEREOF, the Investor has caused this instrument to be executed on its behalf, pursuant to authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this ____ day of _________, 199_. [NAME OF INVESTOR] By: _____________________________________ Name: Title: Personally appears before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Investor, and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the Investor. Subscribed and sworn before me this _____day of ___________, 199_. __________________________________ NOTARY PUBLIC COUNTY OF ________________________ STATE OF _________________________ My Commission expires the ________ day of __________, 19___. D-3 122 EXHIBIT E FORM OF NOTICE REGARDING PAYMENT IN FULL OF PRINCIPAL BALANCE OF MORTGAGE LOAN Bankers Trust Company of California, N.A., as Trustee 3 Park Plaza, 16th Floor Irvine, California 92714 Attention: Corporate Trust Administration Re: Mortgage Loan Pass-Through Certificates, Series 1997-C Ladies and Gentlemen: Reference is made to Section 3.07 of the Pooling and Servicing Agreement dated as of September 1, 1997 (the "Pooling and Servicing Agreement") between Aames Capital Corporation, as Seller and Servicer, and Bankers Trust Company of California, N.A., as Trustee. All capitalized terms used but not defined herein shall have the meanings given to such terms in the Pooling and Servicing Agreement. The undersigned hereby certifies that the Principal Balance of the Mortgage Loan(s) listed on Schedule A annexed hereto has been paid in full and that all amounts received in connection with the payment of such Mortgage Loan(s) that were required to be deposited or credited in the Certificate Account pursuant to Section 3.02 of the Pooling and Servicing Agreement have been so deposited or credited. The undersigned further certifies that he is a Servicing Officer of the Servicer holding the office set forth beneath his signature and that he is duly authorized to execute this certificate on behalf of the Servicer. AAMES CAPITAL CORPORATION Date: ____________________________ By: _____________________________________ Name: Title: E-1 123 EXHIBIT F FORM OF LIQUIDATION REPORT 1. Type of Liquidation (REO disposition/charge-off/short pay-off) o Date Last Paid o Date of Foreclosure o Date of REO o Date of REO Disposition o Property Sale Price; Estimated Market Value at Disposition 2. Liquidation Proceeds o Principal Prepayment $o_______ o Property Sale Proceeds _________ o Insurance Proceeds _________ o Other (itemize) _________ TOTAL $o======= 3. Liquidation Expenses o Servicing Advances $o_______ o Monthly Advances _________ o Contingency Fees _________ o Servicing Fees _________ o Annual Expense Escrow Amount _________ o Supplemental Fee (if any) _________ o Additional Interest (if any) _________ o Monthly Sponsor Fee (if any) _________ TOTAL $======== 4. Net Liquidation Proceeds* $________ (Total of Item 2 minus total of Item 3) 5. Accrued and Unpaid Interest on Mortgage Loan $________ 6. Principal Balance of Mortgage Loan $________ 7. Realized Loss on Mortgage Loan $________ (Item 5 plus Item 6 minus Item 4, with a Realized Loss resulting only if the total of this calculation is a positive number) *Applied first to Item 5 and then to Item 6. F-1 124 EXHIBIT G OFFICER'S CERTIFICATE I, _____________________, hereby certify that I am the duly elected _____________________ of Aames Capital Corporation (the "Company") acting as servicer pursuant to a Pooling and Servicing Agreement dated as of September 1, 1997 by and among the Company and Bankers Trust Company of California, N.A., as Trustee, and further certify, to the best of my knowledge and after due inquiry that the following is a summary of the facts and circumstances surrounding the "charge-off" of any Mortgage Loans during the Collection Period from _____ 1 through _____ 30/31, 199_; [Insert the following information for each "charged-off" Mortgage Loan] Loan # Borrower Name Property Address Date of "charge-off" Original Principal Balance Outstanding Principal Balance Mortgage Loan Rate Accrued Interest at time of "charge off" Unreimbursed Servicing Advances at time of "charge off" Unreimbursed Delinquency Advances at time of "charge off" # of days in default at time of "charge off" Original Appraised Value Current appraised value based upon "drive by" Amount of outstanding first lien Estimate of Foreclosure Costs Broker Fees Legal Fees Repair and Miscellaneous Expenses Projected Marketing Period Estimate of Loss on Foreclosure and Liquidation Capitalized terms not otherwise defined herein have the meanings set forth in the Pooling and Servicing Agreement. IN WITNESS WHEREOF, I have hereunto signed by name and affixed the seal of the Servicer. Dated: _____________________ _________________________________________ Name: Title: G-1 125 EXHIBIT H FORM OF TRANSFEROR AFFIDAVIT [LETTERHEAD OF TRANSFEROR] ________________, 199_ Bankers Trust Company of California, N.A., as Trustee 3 Park Plaza, 16th Floor Irvine, California 92714 Attention: Corporate Trust Administration Re: Aames Mortgage Trust 1997-C Mortgage Pass-Through Certificates, Series 1997-C Ladies and Gentlemen: We have reviewed the attached affidavit of [NAME OF TRANSFEREE] and have no actual knowledge that such affidavit is not true and has no reason to believe that the requirements set forth in paragraph 3, paragraph 4(i) or paragraph 4(ii) are not satisfied and have no reason to believe that the transferee has the intention to impede the assessment or collection of any federal, state or local taxes legally required to be paid with respect to a Class R Certificate. In addition, we have conducted a reasonable investigation at the time of the transfer and found that the transferee had historically paid its debts as they came due and found no significant evidence to indicate that the transferee will not continue to pay its debts as they become due. Very truly yours, _________________________________________ By: ____________________________________ Name: Title: H-1 -----END PRIVACY-ENHANCED MESSAGE-----